Managing for Results: Building on the Momentum for Strategic	 
Human Capital Reform (18-MAR-02, GAO-02-528T).			 
								 
This testimony discusses the federal government's human capital  
challenges. The basic problem has been a longstanding lack of a  
consistent strategic approach to marshalling, managing, and	 
maintaining the human capital needed to maximize government	 
performance and assure its accountability. To overcome this	 
problem, GAO has developed a model of strategic human capital	 
management that highlights the importance of a sustained	 
commitment by agency leaders to maximize the value of their	 
agencies' human capital and related risks. The Office of	 
Personnel Management and the Office of Management and Budget have
developed tools to assess human capital management efforts that  
are conceptually consistent with GAO's model. There are two	 
central principles in the GAO model. First, people are assets	 
whose value can be enhanced through investment. As with any	 
investment, the goal is to maximize value while managing risk.	 
Second, an organization's human capital approaches should be	 
designed, implemented, and assessed by how well they help pursue 
its mission and achieve desired results. In addition, GAO has	 
identified a preliminary list of key practices that will enable  
agencies to acquire, develop, and retain talent. Leadership	 
issues are also critical to organizational change. Specifically, 
agency leaders must embrace strategic human capital management	 
and related change management approaches.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-528T					        
    ACCNO:   A02902						        
  TITLE:     Managing for Results: Building on the Momentum for       
Strategic Human Capital Reform					 
     DATE:   03/18/2002 
  SUBJECT:   Civil service					 
	     Government employees				 
	     Hiring policies					 
	     Personnel management				 
	     Strategic planning 				 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-02-528T
     
United States General Accounting Office

GAO Testimony

Before the Subcommittee on International Security, Proliferation and Federal
Service Committee on Governmental Affairs, U.S. Senate

For Release on Delivery Expected at 9:30 a.m., EST Monday March 18, 2002

MANAGING FOR RESULTS

Building on the Momentum for Strategic Human Capital Reform

Statement of David M. Walker Comptroller General of the United States

                                      a

GAO-02-528T

Chairman Akaka, Ranking Member Cochran, and Members of the Subcommittee:

I am pleased to be here today to discuss the progress and next steps that
the federal government needs to take in order to manage its most important
asset-its people, or human capital. My central point today is that an
organization's people define its culture, drive its performance, and embody
its knowledge base. As such, effective human capital approaches must be at
the center of efforts to transform the culture of federal agencies so that
they become less hierarchical, process-oriented, stovepiped, and inwardly
focused; and more flat, results-oriented, integrated, and externally
focused. The legislation you are considering today, both in its basic
underlying principles and in some of its major provisions, would make a
positive contribution to advancing this needed cultural transformation.

The tragic events of September 11 and the continuing efforts at homeland
preparedness dramatically demonstrate what many of us have long appreciated-
public servants at all levels of government play an essential role in
keeping us safe, secure, and free. The response to September 11 and other
recent events also have underscored the urgency of dealing with federal
human capital issues. As you know, Mr. Chairman, we testified last week
before this subcommittee on one aspect of the human capital implications of
September 11-the challenges agencies face in meeting their needs for staff
with foreign language skills.1 More generally, the Federal Bureau of
Investigation and other federal law enforcement agencies have been forced to
rethink their missions and programs including critical staff needs, skills
mixes, and the geographic distribution of staff. In addition, the newly
formed Transportation Security Administration must deal with a host of
enormous challenges associated with starting a new agency virtually from
scratch, most dramatically shown by the need to hire over 40,000 employees,
including about 30,000 screeners that must be deployed by November 19, 2002.

From an entirely different but also time-sensitive perspective, the collapse
of Enron has highlighted attention to the fact that U.S. securities markets
have grown tremendously in recent years and become more complex and

1U.S. General Accounting Office, Foreign Languages: Workforce Planning Could
Help  Address Staffing and Proficiency  Shortfalls, GAO-02-514T (Washington,
D.C.: Mar. 12, 2002).

volatile. As a result, for example, the Security and Exchange Commission's
workload has increased in volume and complexity over the last decade, while
its ability to hire and retain skilled staff has not kept pace.2

While recent events certainly underscore the need to address the federal
government's human capital challenges, the basic problem has been the
longstanding lack of a consistent strategic approach to marshaling,
managing, and maintaining the human capital needed to maximize government
performance and assure its accountability. Serious human capital shortfalls
are eroding the capacity of many agencies, and threatening the ability of
others, to economically, efficiently, and effectively perform their
missions.3 The federal government's human capital weaknesses did not emerge
overnight and will not be quickly or easily addressed. Committed, sustained,
and inspired leadership and persistent attention on the behalf of all
interested parties will be essential if lasting changes are to be made and
the challenges we face successfully addressed.

On the other hand, as a very positive development, we are seeing increased
attention to strategic human capital management and a real and increasing
momentum for change is now evident.

* In January 2001, GAO designated strategic human capital management as a
governmentwide high-risk area.

* In August 2001, President Bush placed human capital at the top of his
management agenda.

* Subsequently, the Office of Management and Budget (OMB) assessed agencies'
progress in addressing their individual human capital challenges as part of
its management scorecard in preparation of the fiscal year 2003 budget.

* As one of its many efforts to help agencies with these issues, the Office
of Personnel Management (OPM) released a human capital balanced scorecard
last December to assist agencies in responding to the OMB scorecard.

2U.S. General Accounting Office, SEC Operations: Increased Workload Creates
Challenges, GAO-02-302 (Washington, D.C.: Mar. 5, 2002).

3U.S. General Accounting Office, Performance and Accountability Series-Major
Management Challenges and Program Risks: A Governmentwide Perspective,
GAO-01-241 (Washington, D.C.: Jan. 2001). In addition, see the accompanying
21 reports (numbered GAO-01-242 through GAO-01-262) on specific agencies.

* Finally, Congress, under the leadership of this subcommittee and the
Senate Governmental Affairs Committee, has underscored the consequences of
human capital weaknesses in federal agencies and pinpointed solutions
through oversight and the wide range of hearings held over the last few
years.

As requested by the subcommittee, my statement today will explore how
strategic human capital management can contribute to transforming the
cultures of federal agencies. First, I will highlight the major components
of a new model of strategic human capital management that we released last
week as an exposure draft to assist agencies in making that transformation.
In developing this model, we benefited from the insights and suggestions of
Director James and her staff at OPM, OMB, and many others both inside and
outside of the federal government. Second, I will discuss some key practices
that agencies need to have in place to effectively use human capital
authorities. Both OPM's recent efforts and the legislation under
consideration today expand the flexibilities, authorities, and
responsibilities of federal agencies for the strategic management of their
human capital. Third and finally, I will highlight what I believe to be some
of the more promising provisions of what we understand are the emerging
managers' amendments to S. 1603, The Federal Human Capital Act of 2001
(Federal Human Capital Act).

GAO's Model of Strategic Human Capital Management

Our model of strategic human capital management4 is designed to help agency
leaders effectively lead and manage their people and integrate human capital
considerations into daily decision-making and the program results they seek
to achieve. In so doing, the model highlights the importance of a sustained
commitment by agency leaders to maximize the value of their agencies' human
capital and to manage related risks. Accordingly, it raises the bar for all
of us-those in positions of leadership, federal managers, employees, unions,
and human capital executives and their teams.

In publishing this model, we are aware that GAO is not the only agency
releasing tools for strategic human capital management. As I noted before,
OPM and OMB have developed tools that are being used to assess human

4U.S. General Accounting Office, A Model of Strategic Human Capital
Management, Exposure Draft, GAO-02-373SP (Washington, D.C: Mar. 2002). The
model and other General Accounting Office products discussed in this
statement are available at www.gao.gov.

capital management efforts. While GAO's human capital model was developed
independently of OPM and OMB, we provided drafts of the model for their
review prior to publication to help ensure that the three efforts are
conceptually consistent. We hope that the perspective and information
provided in our model will help inform agencies' efforts to respond to the
administration's management initiatives, such as getting to "green" on OMB's
management scorecard, and using the tools developed by OPM. Over the coming
months, we will work with OPM, OMB, Congress, and others to explore
opportunities to develop a more fully integrated set of guidance and tools
for agencies for addressing their human capital challenges.

Consistent with OPM's and OMB's views, our model of strategic human capital
management embodies an approach that is fact-based, focused on strategic
results, and incorporates merit principles and other national goals. As
such, the model reflects two principles central to the human capital idea:

* People are assets whose value can be enhanced through investment. As with
any investment, the goal is to maximize value while managing risk.

* An organization's human capital approaches should be designed,
implemented, and assessed by the standard of how well they help the
organization pursue its mission and achieve desired results or outcomes.

The model highlights the kinds of thinking that agencies should apply, as
well as some of the steps they can take, to make progress in managing human
capital strategically. The heart of the model consists of eight critical
success factors, which are organized in pairs to correspond with four
cornerstones of effective strategic human capital management.

 Figure 1: Critical Success Factors Organized By Human Capital Cornerstones

Leadership

A critical element of any successful organizational cultural transformation
is the demonstrated commitment of top leaders to change.5 Specifically,
agency leaders, political and career alike, must embrace strategic human
capital management and related change management approaches. Agency leaders
need to see people as vital assets to organizational success and must invest
in this valuable asset. Agencies can foster this thinking and commitment in
their future leaders through efforts such as succession planning and
executive development. In addition, agencies need to hold managers
accountable for effectively managing people and actively supporting these
concepts. Commissioner Rossotti's efforts at the Internal Revenue Service
(IRS) provide one clear example of leadership's commitment to change. The
Commissioner has articulated a new mission for the agency, together with a
set of strategic goals that balance customer service and compliance with tax
laws. The Commissioner is personally leading the effort to realign
organizational units, programs, and resources to achieve the new mission and
goals. The Commissioner's recent announcement that he plans to leave IRS in
November underscores the importance of political and career leadership
working together to develop, implement, and sustain transformational change
initiatives. These changes are critical but often take years and span
periods far beyond the tenure of a single political appointee.

Federal leaders must also integrate the human capital function into
agencies' core planning and business activities. Human capital professionals
must partner with agency leaders, line managers, and unions in developing
strategic and program plans. In short, top human capital professionals in
agencies across the government must move from the "back room to the
boardroom." Leaders must devote the resources necessary to retool employees
in human capital offices so that they are prepared and empowered to provide
a range of technical and consultative services. As part of this transition,
continuing efforts are needed to streamline and automate personnel
transactions to free up resources so that the human capital office can
devote more time to providing consultative services to line managers as they
seek to integrate human capital into their management activities.

5 U.S. General Accounting  Office, Management Reform: Elements of Successful
Improvement Initiatives, GAO/T-GGD-00-26 (Washington, D.C.: Oct. 15, 1999).

Strategic Human Capital Planning

Acquiring, Developing, and Retaining Talent

Agencies must establish a clear set of organizational intents, including a
clearly defined mission, core values, goals and objectives, and strategies,
and then integrate their human capital approaches to support their strategic
and programmatic goals. Agencies need to constantly reevaluate their human
capital approaches as program priorities and strategies change. Agency
strategic human capital planning must be results-oriented and data-driven,
including, for example, information on the appropriate number and location
of employees and their key competencies and skills. Strategic workforce
planning documents should include data on the agency's workforce profile,
performance goals and measures for human capital approaches, and areas
requiring agency attention. The Air Force Materiel Command, for example, has
collected important human capital data and used it to develop human capital
strategies to ensure the organization has the appropriate mix of civilian,
military, and contract employees to meet future business needs.

Agencies must identify their current and future human capital needs and then
create strategies for filling the gaps. An important part of these
strategies is targeted investments to provide resources for the planning,
implementation, and evaluation of human capital initiatives. Agencies that
focus on strategic human capital management realize that as the value of
their people increases so does the performance capacity of the organization.
This investment is valuable for both employers and employees alike. Our
ongoing work at the State Department provides an example of how targeted
human capital investments can pay off for an agency. To enhance its
information technology (IT) workforce, State provides incentives and
retention allowances to IT personnel who obtain job-related degrees and
certifications. This program has helped State increase its information
technology skills base and aided in the recruitment and retention of IT
professionals.

Agencies focusing on strategic human capital management develop a tailored
approach to use the personnel authorities that are appropriate for their
particular organization and its needs. Under current laws, rules, and
regulations, agencies have the flexibility to offer competitive incentives
to attract employees with critical skills; to create the kinds of
performance incentives and training programs that motivate and empower
employees; and to build constructive labor-management relationships that are
based on common interests and are in the public interest. Agencies should
develop a sound business case for using these flexibilities by focusing on
how a given flexibility will address human capital challenges and ultimately
improve agency results.

Results-Oriented Organizational Cultures

Effective human capital strategies require a collaborative environment where
a diverse set of managers, teams, and employees are empowered to accomplish
programmatic goals. A key ingredient to developing a results-oriented
culture is for agencies to involve employees in decision-making either
directly or through employee unions and organizations, as appropriate.
Involving employees in the planning process helps to develop agency goals
and objectives that incorporate insights about operations from a front-line
perspective. Involving employees can also serve to increase employees'
understanding and acceptance of organizational goals and objectives and
improve motivation, morale, and retention.6 Agencies also must promote and
achieve a diverse workplace that meets the needs of workers of all
backgrounds. Not only do effective agencies maintain a "zero tolerance" for
discrimination; they also realize that an inclusive workforce is a
competitive advantage.

Another success factor of a results-oriented culture is a performance
management system that creates a "line of sight" showing how individual
employees can contribute to overall organizational goals. Agencies who
effectively implement such a system must first align agency leaders'
performance expectations with organizational goals and then cascade
performance expectations to other organizational levels. These employees are
then held accountable for their contributions to desired results. The
performance management systems of leading organizations typically seek to
achieve three key objectives. First, they strive to provide candid and
constructive information to individual employees to enable those employees
to maximize their contributions to the organization's goals and achieve
their personal potential. Second, they seek to provide management with the
objective and fact-based information it needs to reward top performers.
Third, the performance management systems provide the necessary information
and documentation to deal with poor performers.

Leading organizations also use their performance management systems as a key
tool for managing the organization on a day-to-day basis, facilitating
communication throughout the year so that discussions about individual and
organizational performance are ongoing. For example, the Veterans Health
Administration holds key leaders accountable for results by establishing
performance agreements that consist of "core competencies,"

6U.S. General Accounting Office, Human Capital: Practices that Empowered and
Involved Employees, GAO-01-1070 (Washington, D.C.: Sept. 14, 2001).

Key Practices Needed to Effectively Use Human Capital Authorities

agencywide goals, and specific performance goals that gauge the
organization's progress toward meeting the agency mission.7 These
performance agreements are used continuously throughout the year as a basis
for monitoring organizational progress, identifying performance gaps, and
making needed program adjustments.

Finally, agencies should also balance their pay and incentive programs to
encourage both individual and team contributions to achieving results.
Congress and the Administration have repeatedly expressed a commitment to
more fully link resources to results. The American people expect and deserve
this linkage as well. However, we will never achieve this linkage without
modern and effective performance management strategies. In my view, much
greater emphasis needs to be placed on performance management and its
linkage to compensation.

I would now like to turn to a more detailed discussion regarding the third
cornerstone of our model-the tailored use of human capital flexibilities for
acquiring, developing, and retaining talent. For years, the civil service
system as a whole has been viewed by many as burdensome to managers,
unappealing to ambitious recruits, hidebound and outdated, overregulated,
and inflexible. While comprehensive civil service reform may likely be
necessary in the coming years, agencies do not have to wait for legislative
reform to occur to make needed improvements in human capital management. As
I have testified previously, agencies need to make concerted efforts in
identifying and maximizing the flexibilities already available under
existing personnel laws, rules, and regulations.

The Federal Human Capital Act that we are discussing today would expand the
authorities available to agencies to strategically manage their workforces.
A study that we are conducting for this subcommittee and others is looking
at agencies' use of the flexibilities currently available and therefore is
informative to the current discussion. As part of this study, we interviewed
major department and agency human resource directors and on the basis of
those discussions and our related work, we identified a preliminary list of
key practices agencies need to undertake in order to make effective use of
personnel authorities:

7 U.S. General Accounting Office, Managing for Results: Emerging Benefits
From Selected Agencies' Use of Performance Agreements, GAO-01-115
(Washington, D.C.: Oct. 30, 2000).

* Plan strategically and make targeted investments. Agencies need to ensure
that the use of flexibilities is part of an overall human capital strategy
clearly linked to the program goals of the organization. Agencies also need
a sound business case for how they will use and fund the authorities.

* Ensure stakeholder input in developing policies and procedures. Agency
leaders, managers, employees, and employee unions must work together to
effectively implement any flexibility or new personnel authority in order to
reach agreement on the need for change, the direction and scope that change
will take, and how progress will be assessed.

* Educate managers and employees on the availability and use of authorities.
Human capital offices need to ensure that they have an effective campaign
not only to inform managers of their personnel authorities, but also to
explain the situations where the use of those authorities is appropriate.
Agencies also need to inform employees about relevant policies and
procedures and about the employees' rights related to the use of these
authorities.

* Streamline the administrative processes. Agencies should streamline
administrative processes for using flexibilities and review self-imposed
constraints that may be excessively process-oriented. Human resource
directors said that managers often complain that complicated forms and
multiple approval levels hamper the use of flexibilities. In the absence of
a simple process, busy supervisors and managers may not make the effort to
seek the approval to use a flexibility. Reengineering self-imposed processes
could yield substantial opportunities for the additional use of
flexibilities. To the extent that agencies identify regulatory or statutory
barriers to flexible human capital approaches, they should work with OPM and
OMB to seek the necessary regulatory or statutory changes.

* Build accountability into the system. To ensure accountability, agencies
should delegate authority to use flexibilities to appropriate levels within
the agency. Agencies must develop clear and transparent guidelines for using
flexibilities. Agencies must then hold managers and supervisors accountable
for their fair and effective use.

* Change the organizational culture. While accountability is essential,
agencies need to address managers' and supervisors' concerns that employees
will view the use of some flexibilities, such as recruiting incentives or
rewarding high performers, as unfair, and the belief that all employees must
be treated essentially the same regardless of performance and agency needs.
Managers should be encouraged to selectively use flexibilities based on
clearly defined, well documented, and transparent guidelines.

Proposed Legislation Makes Positive Steps to Addressing Human Capital
Challenges

While we will continue our work in this area, our preliminary view is that
agencies need to employ these practices to effectively take advantage of the
new authorities that are proposed in the legislation under consideration
today. Working with the subcommittee and agencies, we are doing additional
work to validate the list of practices and to identify specific examples of
where an agency has successfully developed and employed each listed
practice. Our hope is that this work will be helpful to agencies as they
seek to maximize the use of personnel authorities-both those available under
current law and regulation, and those additional authorities that may be
granted in the future.

Key provisions of the Federal Human Capital Act represent an important next
step to helping agencies address their human capital management challenges.
I appreciate the opportunity that the subcommittee provided to my staff and
me to offer input as the legislation was being initially crafted. Many of
the provisions contained in the bill are consistent with authorities GAO
already has or has been urging for other federal agencies. Key provisions
would make a positive contribution to each of the human capital management
cornerstones I discussed earlier: leadership; strategic human capital
planning; acquiring, developing, and retaining talent; and results-oriented
organizational cultures. Since we provided detailed comments in earlier
discussions with the subcommittee on the proposed bill as it was being
crafted, this morning I will just comment on those provisions that I believe
are particularly valuable in fostering the needed cultural transformation
within agencies.

Leadership - The Federal Human Capital Act contains several provisions to
strengthen leadership over human capital. We believe that federal agencies
need to have a senior official responsible for the organization's strategic
human capital management. The broad range of responsibilities for the chief
human capital officer listed in the legislation are generally consistent
with those that I have placed with GAO's chief human capital officer. GAO's
chief human capital officer, as a key member of our executive team, provides
human capital services to all headquarters and field staff in support of
GAO's strategic direction and key efforts. While designating a chief human
capital officer is a very positive step, it should not in any way be seen as
reducing the responsibilities that the agency's highest leadership has for
human capital issues. In knowledge-based organizations, including most
federal agencies, where people are the organization's most important asset,
attention to the organization's human capital is one of the primary
responsibilities of the head of that organization. Creating a chief human
capital officer council, modeled on

the chief financial officer and the chief information officer councils, also
is a very good idea in my view. We have reported in the past that the use of
councils to develop and implement initiatives to address federal management
issues and to serve as "communities of interest" to, among other things,
share best practices, was one of the major positive public management
developments over the past decade.8

As a next step, the subcommittee may wish to consider creating statutory
chief operating officers (COO) within major executive branch agencies. While
various models for structuring such a position could be used, the basic idea
is to create a position that would be responsible for major, long-term
management, cultural transformation, and stewardship responsibilities within
the agency. These long-term responsibilities are professional and
nonpartisan in nature. They cover a range of "good government"
responsibilities that are fundamental to effectively executing any
administration's program agenda. The nature and scope of the cultural
transformation that needs to take place in many agencies across the federal
government will take years to accomplish-easily outrunning the tenures of
most political appointees. For example, the business transformation efforts
that are underway at the Department of Defense may take a decade or more to
be fully and effectively implemented. Secretary Rumsfeld and his leadership
team are clearly committed to making the necessary changes. A COO at Defense
and elsewhere, subject to a clearly-defined, results-oriented performance
contract, could provide the continuity that spans the tenure of the
political leadership and help ensure that long-term stewardship issues are
addressed and change management initiatives are successfully completed. In
this sense, these statutory COOs would differ from-but hopefully
complement-the role often assumed by the deputy secretaries in the agencies.
We would be pleased to work with the subcommittee should you wish to explore
this idea.

Human Capital Planning - The legislation also addresses key strategic human
capital planning issues. It underscores the need for agencies to clearly and
directly link their human capital planning efforts with their strategic and
program plans developed under the Government Performance and Results Act.
Moreover, I believe that the early retirement

8  U.S. General Accounting  Office,  Government Management: Observations  on
OMB's Management Leadership Efforts, GAO/T-GGD/AIMD-99-65 (Washington, D.C.:
Feb. 4, 1999).

and buy-out authorities are important provisions. The changes make
appropriate recognition of the need to consider employee skills and
abilities-in addition to longevity-when making such decisions as a part of
overall workforce planning. As our own experience in GAO has shown, such
authorities can and should be used to help "get agencies in shape" to
respond to current and emerging needs rather than as a blunt instrument for
downsizing. Over time, Congress may wish to consider adding employee
performance as a factor that can be considered in making rightsizing
decisions, consistent with the authorities that were provided to GAO.
However, before performance could be included as a factor, agencies would
need to ensure that they have modern effective and validated performance
management systems in place that are able to support such decisions.

Attracting, Developing, and Retaining Talent - Several provisions strengthen
agencies' abilities to attract, develop, and retain talent. The increased
flexibility in the amount and timing of the payments for recruiting,
relocation, and retention bonuses is particularly noteworthy. Agency human
resource directors told us that these flexibilities were among the most
effective. The provisions that authorize agencies to pay for academic
training for employees should have a positive influence in addressing
recruitment and retention challenges as well as helping to build the
knowledge and skills of the organizations' people.

I have often noted that much of what needs to be done in regard to federal
human capital management can be done now under agencies' existing
authorities. Thus, while we should continue to seek appropriate regulatory
and statutory changes that would help streamline the federal hiring process,
the agencies need not and should not wait. For example, they need to make
sure that they have the recruitment programs in place to compete effectively
for needed talent. This includes having well defined and creative recruiting
strategies and appropriate processes in place to communicate with applicants
and prospective employees in a timely manner.

I agree with the legislation's efforts to instill a more strategic approach
to federal employee training efforts. Agencies' training and development
programs should be based on the skills and competencies agencies need and be
directly linked to program goals and desired results. Agreeing on expected
results and associated performance measures at the outset for training and
development efforts can also help ensure that credible evaluation results
will be available to provide feedback on performance. A systematic
evaluation of training and development efforts can help show

how such efforts contribute to individual and organizational performance and
suggest opportunities for further improvement.

Results-Oriented Culture - As you know, I believe that a much greater
emphasis should be placed on skills, knowledge, and performance in
connection with federal employment and compensation decisions at all levels,
rather than the passage of time and rate of inflation, as so often is the
case today. In fact, over 80 percent of the cost associated with the annual
increases in federal salaries is due to longevity and the annual pay
adjustment. In recent years, widespread concern has been expressed about the
methodology and results of the procedures to determine the federal pay gap.
These concerns are among the reasons that the pay gap has never been fully
addressed. I believe that careful study is needed to develop more realistic
and workable methodologies and solutions to federal pay issues. Part of that
assessment should focus on options for moving away from a compensation
system that contains governmentwide pay increases with locality adjustments,
and toward a system that is based to a greater degree on knowledge, skills,
abilities, and performance of the individuals involved. Additional
information on the performance management programs in use in various
departments and agencies and the relative strengths and weaknesses of those
programs, along with best practice information, would also prove very
helpful as agencies seek to link pay to individual knowledge, skills,
abilities, and performance. Congress may wish to consider amending the
legislation to require that these studies be undertaken; specifically, (1) a
professional, objective, and independent assessment of the pay gap and (2) a
survey and assessment of performance management systems and programs across
the government with a view toward identifying lessons learned and best
practices in linking pay to employees' knowledge, skills, abilities, and
performance.

I fully appreciate that much work may be needed before agencies' respective
performance management systems are able to support a more direct link
between pay and individual knowledge, skills, abilities, and performance.
OPM certainly has a continuing and vital role to play on these issues. I
understand that OPM is working on a white paper that should help inform the
needed discussions. I expect that the greater use of "broad banding" is one
of the options under consideration. In fact, as it considers the
legislation, Congress may also wish to explore the benefits of (1) providing
OPM with additional flexibility that would enable it to grant a
governmentwide authority for agencies (that is, class exemptions) to use
broad banding for certain critical occupations and/or (2) allowing agencies
to apply to OPM (that is, case exemptions) for broad banding authority for
their specific critical occupations. However, agencies should

be required to demonstrate to OPM's satisfaction that they have modern,
effective, and validated performance management systems before they are
allowed to use broad banding.

The Federal Human Capital Act recognizes the importance of a
results-oriented culture by focusing attention on poor performers, whose
affect on agencies' performance and morale can far exceed their numbers.
Still, while important, dealing with poor performers is only part of the
problem; agencies need to create additional incentives and rewards for
valuable and high-performing employees, who represent the vast majority of
the federal workforce. As I have just noted, to achieve this objective, more
fundamental change will need to be considered.

In summary, Mr. Chairman, I believe that there is no more important
management reform than strategic human capital management. We all need to
seize the momentum that has recently emerged-agencies must use existing
authorities to strategically manage their people; Congress, as it is doing
with the proposed legislation, needs to consider statutory changes in the
short term; and all interested parties need to consider more
transformational changes for the longer term. Our model of strategic human
capital management and our related work are designed to assist Congress and
agencies in this regard. I look forward to continuing to work with Congress,
OPM, OMB, the agencies, and others as we jointly seek to address the human
capital challenges that are undermining agencies' effectiveness now and as
they prepare for the future.

Thank you again for your continuing attention to human capital reform. The
leadership shown by this subcommittee, by holding this and related hearings
and in its oversight generally, has both helped to create and increase the
needed momentum for change and highlight the need for, and direction of,
possible solutions. I would be pleased to respond to any questions you or
other Members of the subcommittee may have.

Contact and For further information regarding this testimony, please contact
J. Christopher Mihm, Director, Strategic Issues, on (202) 512-6806 or at

Acknowledgments [email protected]. Individuals making key contributions to this
testimony included Ridge Bowman, Scott Derrick, Ellen Rubin, Shelby D.
Stephan, Edward Stephenson, and Jamie Whitcomb.

GAO's Mission The General Accounting Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of
the federal government for the American people. GAO examines the use of
public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to good
government is reflected in its core values of accountability, integrity, and
reliability.

Obtaining Copies of GAO Reports and Testimony

The fastest and easiest way to obtain copies of GAO documents is through the
Internet. GAO's Web site (www.gao.gov) contains abstracts and full-text
files of current reports and testimony and an expanding archive of older
products. The Web site features a search engine to help you locate documents
using key words and phrases. You can print these documents in their
entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its Web
site daily. The list contains links to the full-text document files. To have
GAO E-mail this list to you every afternoon, go to www.gao.gov and select
"Subscribe to daily e-mail alert for newly released products" under the GAO
Reports heading.

To Report Fraud, Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm,Waste, and Abuse in E-mail:
[email protected], orFederal Programs 1-800-424-5454 or (202) 512-7470
(automated answering system).

Public Affairs Jeff Nelligan, Managing Director, [email protected] (202)
512-4800 U.S. General Accounting Office, 441 G. Street NW, Room 7149,
Washington, D.C. 20548
*** End of document. ***