Human Capital: DHS Personnel System Design Effort Provides for	 
Collaboration and Employee Participation (30-SEP-03,		 
GAO-03-1099).							 
                                                                 
The success of the transformation and implementation of the	 
Department of Homeland Security (DHS) is based largely on the	 
degree to which human capital management issues are addressed.	 
Recognizing this, the legislation creating DHS provided it with  
significant flexibility to design a modern human capital	 
management system. Congressional requesters asked GAO to describe
the process DHS has in place to design its human capital system  
and involve employees, and analyze the extent to which this	 
process reflects elements of successful transformations.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-1099					        
    ACCNO:   A08612						        
  TITLE:     Human Capital: DHS Personnel System Design Effort	      
Provides for Collaboration and Employee Participation		 
     DATE:   09/30/2003 
  SUBJECT:   Accountability					 
	     Agency missions					 
	     Federal agency reorganization			 
	     Human resources utilization			 
	     Personnel management				 
	     Prioritizing					 
	     Strategic planning 				 

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GAO-03-1099

United States General Accounting Office

GAO

                       Report to Congressional Requesters

September 2003

HUMAN CAPITAL

DHS Personnel System Design Effort Provides for Collaboration and Employee
                                 Participation

                                       a

GAO-03-1099

Highlights of GAO-03-1099, a report to congressional requesters

The success of the transformation and implementation of the Department of
Homeland Security (DHS) is based largely on the degree to which human
capital management issues are addressed. Recognizing this, the legislation
creating DHS provided it with significant flexibility to design a modern
human capital management system.

Congressional requesters asked GAO to describe the process DHS has in
place to design its human capital system and involve employees, and
analyze the extent to which this process reflects elements of successful
transformations.

As the process to develop and implement a new human capital system at DHS
moves forward, we recommend that the Secretary of DHS and Director of OPM
ensure that the human capital management system is designed to accomplish
the mission, objectives, and goals of the department. In addition, we are
recommending that the Secretary ensure that the communication strategy
used to support the human capital system maximizes opportunities for
employee involvement.

DHS and OPM commented on a draft of this report and generally agreed with
its content. The report was revised to reflect agency comments.

www.gao.gov/cgi-bin/getrpt?GAO-03-1099.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact J. Christopher Mihm at (202)
512-6806, or [email protected].

September 2003

HUMAN CAPITAL

DHS Personnel System Design Effort Provides for Collaboration and Employee
Participation

The effort to design a human capital management system for DHS generally
reflects important elements of effective transformations.

o  	Leadership. One of the strengths of the effort to transform the
culture of organizations going into DHS has been the on-going commitment
of both DHS and Office of Personnel Management (OPM) leaders to stimulate
and support the effort to design a human capital system.

o  	Strategic Goals. DHS is currently developing a strategic plan.
Although DHS human resource leaders are included on the strategic planning
team, it will not be complete until the end of September 2003.
Consequently, DHS will need to ensure that the development of the human
capital policy options is integrated with the accomplishment of DHS
programmatic goals as defined in the forthcoming strategic plan. Such
integration is important to ensure that the human capital system enables
the department to acquire, develop, and retain the core competencies
necessary for DHS to accomplish its programmatic goals.

o  	Key Principles. The DHS Secretary and OPM Director outlined four
principles to serve as a critical framework for the human capital system.
These principles appropriately identify the need to support the mission
and employees of the department, protect basic civil service principles,
and hold employees accountable for performance.

o  	Timeline. Agency officials established an ambitious 9- to 10-month
timeline for completing the design process, aiming to issue final
regulations in early 2004. Some DHS stakeholders we interviewed expressed
concerns about the compressed schedule. Officials leading the design
effort report the aggressive schedule is necessary to relieve employee
anxiety and maximize the time available for implementation.

o  	Design Team. The design team includes staff from multiple
organizational units within DHS, OPM, and the three major unions.

o  	Communication. DHS recently finalized a communication plan that
provides a structured and planned approach to communicate with DHS
stakeholders regarding the human capital system. Moving forward, DHS will
need to provide adequate opportunities for feedback once the options are
released.

o  	Employee Involvement. Employees are provided multiple opportunities to
be included in the design process, including participation in the Core
Design Team, the Town Hall meetings, the field team, the focus groups, and
an e-mail mailbox for employee comments.

Experience has shown that in making major changes in the cultures of
organizations, how it is done, when it is done, and the basis on which it
is done can make all the difference in whether it is ultimately
successful. The analysis of DHS's effort to design a human capital system
can be particularly instructive in light of legislative requests for
agency-specific human capital flexibilities at the Department of Defense
and the National Aeronautics and Space Administration.

Contents

Letter                                                                   1 
                                  Results in Brief                          5 
                                     Background                             8 
                     Design Process Provides for Collaboration             12 
                  DHS and OPM Leadership Stimulates and Supports the Human 
                               Capital Transformation                      14 
          DHS Personnel System will Need To Be Integrated with Mission and 
                                   Program Goals                           15 
                       Process Steered by Guiding Principles               16 
                           Ambitious Timeline Established                  18 
                 Design Participants Represent a Mix of DHS and OPM        
                                     Employees                             20 
                       Communications Plan Recently Completed              22 
                  Design Process Provides for Employee Involvement         24 
                                    Conclusions                            26 
                        Recommendations for Executive Action               27 
                         Agency Comments and Our Evaluation                27 

Appendixes

                                  Appendix I:

                    Appendix II: Appendix III: Appendix IV:

                                  Appendix V:

Practices and Implementation Steps for Mergers and Transformation 29

Design Process 31

Characteristics of Core Design Team Members 34

Comments from the Office of Personnel Management 36

GAO Contacts and Staff Acknowledgments 38 GAO Contacts 38 Acknowledgments
38

    Tables    Table 1: Positions Transferred to DHS as of March 8, 2003    11 
                           Table 2: Design Team Membership                 34 
                      Table 3: Who Selected Design Team Member             34 
                            Table 4: Subgroup Membership                   35 
              Table 5: Human Capital Professional versus Other Experience  35 
                 Table 6: Years of Experience of Design Team Members       35 

Figures Figure 1: DHS Personnel System Design Process 6 Figure 2: The
Three Stages of the Design Process and Their Roles 13

Contents

Figure 3:	Core Design Team Members Who Describe Themselves as Human
Capital Professionals 21

Figure 4:	Percent of Core Design Team Members with Work Experience Outside
Headquarters 21

Figure 5:	Key Practices and Implementation Steps for Mergers and
Transformations 30

Abbreviations

AFGE American Federation of Government Employees
APHIS Animal and Plant Health Inspection Service
CIA Central Intelligence Agency
CPDF Central Personnel Data File
DHS Department of Homeland Security
DOD Department of Defense
DOJ Department of Justice
FACA Federal Advisory Committee Act
FBI Federal Bureau of Investigation
FEMA Federal Emergency Management Agency
FLETC Federal Law Enforcement Training Center
FTE full-time equivalent
INS Immigration and Naturalization Service
NAAE National Association of Agricultural Employees
NASA National Aeronautics and Space Administration
NSA National Security Agency
NTEU National Treasury Employees Union
OMB Office of Management and Budget
OPM Office of Personnel Management
TSA Transportation Security Administration

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A

United States General Accounting Office Washington, D.C. 20548

September 30, 2003

The Honorable George V. Voinovich

Chairman, Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia

Committee on Governmental Affairs

United States Senate

The Honorable Jo Ann Davis

Chairwoman, Subcommittee on Civil Service and Agency Organization
Committee on Government Reform United States House of Representatives

The creation of the Department of Homeland Security (DHS) represents an
historic moment for the federal government to fundamentally transform how
the nation will protect itself from terrorism. DHS now has an
opportunity-and a responsibility-to transform and integrate a disparate
group of agencies with multiple missions, values, and cultures into a
strong and effective cabinet department. Together with this unique
opportunity, however, also comes significant risk to the nation that could
occur if this transformation is not implemented successfully. In fact, we
designated this implementation and transformation as high risk in January
2003.1

We convened a forum in September 2002 to identify useful practices and
lessons learned from major public and private transformations that DHS and
other federal agencies could use to inform transformation efforts.2 While
no two mergers or transformation efforts are exactly alike and the "best"
approach depends on a variety of factors specific to each context, there
was general agreement on a number of key practices. These practices
include:

1U.S. General Accounting Office, Major Management Challenges and Program
Risks: Department of Homeland Security, GAO-03-102 (Washington, D.C.:
January 2003).

2U.S. General Accounting Office, Highlights of a GAO Forum: Mergers and
Transformation: Lessons Learned for a Department of Homeland Security and
Other Federal Agencies, GAO-03-293SP (Washington, D.C.: Nov. 14, 2002).

1.	Ensure top leadership drives the transformation. Leadership must set
the direction, pace, and tone and provide a clear, consistent rationale
that brings everyone together behind a single mission.

2.	Establish a coherent mission and integrated strategic goals to guide
the transformation. Together, these define the culture and serve as a
vehicle for employees to unite and rally around.

3.	Focus on a key set of principles and priorities at the outset of the
transformation. A clear set of principles and priorities serves as a
framework to help the organization create a new culture and drive employee
behaviors.

4.	Set implementation goals and a timeline to build momentum and show
progress from day one. Goals and a timeline are essential because the
transformation could take years to complete.

5.	Dedicate an implementation team to manage the transformation process. A
strong and stable team is important to ensure that the transformation
receives the needed attention to be sustained and successful.

6.	Use the performance management system to define responsibility and
assure accountability for change. A "line of sight" shows how team, unit,
and individual performance can contribute to overall organizational
results.

7.	Establish a communication strategy to create shared expectations and
report related progress. The strategy must reach out to employees,
customers, and stakeholders and engage them in a two-way exchange.

8.	Involve employees to obtain their ideas and gain their ownership for
the transformation. Employee involvement strengthens the process and
allows them to share their experiences and shape policies.

9.	Build a world-class organization. Building on a vision of improved
performance, the organization adopts the most efficient, effective, and
economical personnel, system, and process changes and continually seeks to
implement best practices.

Building on the forum, we recently identified specific implementation
steps for these key practices.3 (See app. I). Many mergers do not live up
to their potential. Research suggests that the failure to adequately
address a wide variety of people and cultural issues is at the heart of
unsuccessful mergers and transformations. Therefore, strategic human
capital management must be at the center of a successful transformation
effort. The legislation creating DHS provided it with significant
flexibility to design a modern human capital management system.4
Specifically, the department may deviate from requirements contained in
Title 5 of the United States Code relating to performance appraisals,
classification, pay rates and systems,5 and adverse actions and appeals.
However, the department may not deviate from other Title 5 provisions
including the merit system principles, prohibited personnel practices,
equal employment opportunity, civil service examination and selection, and
pay administration.6 In addition, for hiring employees, the department may
take advantage of the governmentwide personnel reform measures contained
in the Homeland Security Act of 2002, including using a category rating
system when evaluating applicants for employment and selecting qualified
applicants for positions using direct hiring procedures.7 Regulations for
the DHS human capital system are to be prescribed jointly by the Secretary
of DHS and the Director of the Office of Personnel Management (OPM). The
legislation also noted that it is the sense of the Congress that employees
be involved in the creation of the new human capital system.

In light of the challenge to transform the organizations joining the
department and establish a modern human capital management system, you
asked that we undertake a series of human capital engagements to assist
DHS in its implementation efforts. As agreed with your office, this is one
of several reports we will issue that will track how DHS begins to make
use of its new human capital authorities. Specifically, this report

3U.S. General Accounting Office, Results-Oriented Cultures: Implementation
Steps to Assist Mergers and Organizational Transformations, GAO-03-669
(Washington, D.C.: July 2, 2003).

4Public Law 107-296, Nov. 25, 2002.

5The department may not however modify Senior Executive pay or fix
employee pay in excess of the limitation on aggregate compensation payable
under 5 U.S.C. 5307.

6Pay administration provisions include premium pay rules.

7Interim regulations implementing these authorities were issued by OPM in
the Federal Register on June 13, 2003. 68 Fed. Reg. 35265.

(1) describes the process DHS has in place to design its human capital
system and involve employees and (2) analyzes the extent to which this
process reflects what we have found to be important elements of successful
transformations.

To address our objectives, we reviewed documents relevant to DHS's
transformation and personnel system design effort and applicable laws and
regulations. These included the April 2003 Human Resources Systems Design
Team Resource Book, the weekly DHS newsletter, OPM data on DHS employees
and unions, the June 2003 Communications Plan, and others. We interviewed
officials from DHS and OPM headquarters who are involved in the effort to
design the new human capital system. Human resource leaders from the five
largest components within DHS were also interviewed - the Transportation
Security Administration (TSA), Federal Emergency Management Agency (FEMA),
the organizations formerly known as the Immigration and Naturalization
Service (INS) and the U.S. Customs Service, and the U.S. Coast Guard - to
learn their impressions of the design process. Interviews with officials
from the three largest employee unions at DHS - the American Federation of
Government Employees (AFGE), the National Treasury Employees Union (NTEU),
and the National Association of Agricultural Employees (NAAE) - provided
additional insights. We then analyzed the information gathered in light of
seven of the nine transformation practices. Practice 6 was excluded from
the analysis because the effort to design a human capital system includes
the development of a performance management system and Practice 9 was
excluded because developing an effective human capital system is one of
many efforts required to become a world-class organization. We conducted
our work in accordance with generally accepted government auditing
standards between March and September 2003.

The description and analysis of DHS's effort to design a strategic human
capital management system can be particularly instructive in light of
legislation that requests additional authority for human capital
management at the Department of Defense (DOD) and the National Aeronautics
and Space Administration (NASA). We have consistently supported the need
for government transformation and the concept of modernizing federal human
capital policies, as underscored in recent testimonies and our January
2003 report which described why we find that strategic human capital
management remains a governmentwide high-risk

area.8 This effort can also prove instructive for future human capital
management and reorganization efforts within specific units of DHS as the
new department is implemented and transformed over time into a cohesive
organization.

Importantly, while the design process used to develop the human capital
system is significant, effective implementation of the system is similarly
crucial to effective human capital management in the new department. In
short, a successful design effort is essential to, but does not guarantee,
effective implementation.

Results in Brief	DHS's and OPM's effort to design a new human capital
system is collaborative and facilitates participation of employees from
all levels of the department. The process is divided into three stages:
research, outreach, and drafting of initial personnel system options;
review of the options; and development of proposed regulations. First, the
Core Design Team conducted research on human capital approaches,
communicated with and gathered feedback from employees, and developed
options. Second, the Senior Review Advisory Committee will review these
options and forward its recommendations to the DHS Secretary and OPM
Director. Third, the Secretary and Director will then propose draft
regulations for the human capital system, engage in the statutory
collaboration period, and issue final regulations by early 2004. The
stages include employees from DHS and OPM, as well as representatives from
the department's three largest unions. See figure 1.

8U.S. General Accounting Office, Human Capital: Building on DOD's Reform
Effort to Foster Governmentwide Improvements, GAO-03-851T (Washington,
D.C.: June 4, 2003); High-Risk Series: Strategic Human Capital Management,
GAO-03-120 (Washington, D.C.: January 2003); and Managing for Results:
Using Strategic Human Capital Management to Drive Transformational Change,
GAO-02-940T (Washington, D.C.: July 15, 2002).

Figure 1: DHS Personnel System Design Process

This effort to design a human capital management system for DHS generally
reflects what we have found to be important elements of effective
transformations.

o 	Ensure top leadership drives the transformation. One of the strengths
of the effort to transform the culture of organizations going into DHS has
been the on-going commitment of both DHS and OPM leaders to stimulate and
support the effort to design a human capital system.

o 	Establish a coherent mission and integrated strategic goals to guide
the transformation. DHS is currently developing a strategic plan. Although
DHS human resource leaders are included on the strategic planning team,
the final plan will not be complete until late September 2003.
Consequently, DHS will need to ensure that the development of the human
capital policy options by the Core Design Team is integrated with the
accomplishment of DHS programmatic goals as defined in the forthcoming
strategic plan. Such integration is important to ensure that the human
capital system enables the department to acquire, develop, and retain the
core competencies necessary for DHS to accomplish its programmatic goals.
Moving forward, it is essential that the Senior Review Advisory Committee,
the Secretary, and the Director ensure that the new human capital system
is aligned with the DHS strategic plan.

o 	Focus on a key set of principles and priorities at the outset of the
transformation. The Secretary and Director outlined four principles

during the first design meeting in April that have served as a framework
for the activities of the Core Design Team.9 These principles
appropriately identify the need to support the mission and employees of
the department, protect basic civil service principles, and hold employees
accountable for performance.

o 	Set implementation goals and a timeline to build momentum and show
progress. Agency officials established an ambitious 9- to 10-month
timeline for completing the design process, aiming to issue final
regulations in early 2004. Some DHS component human resource directors and
other stakeholders we interviewed expressed concerns about the compressed
schedule. Officials leading the Core Design Team report the aggressive
schedule is necessary to relieve employee anxiety and maximize the time
available for implementation within the 5-year window outlined in the DHS
legislation.

o 	Dedicate an implementation team to manage the transformation process.
The membership of the design team includes participants from multiple
organizational units within DHS, OPM, and the three major unions.

o 	Establish a communication strategy to create shared expectations and
report related progress. DHS recently completed a noteworthy and
substantive communication plan that provides a structured and planned
approach to communicate with DHS stakeholders regarding the human capital
system. The objectives of the plan are to: raise awareness, disseminate
information, and promote a clear understanding of the new human capital
system; manage stakeholder expectations and address their concerns; and
provide opportunities for a two-way dialogue. Building on its current
efforts, DHS will need to continue to provide adequate opportunities for
feedback once the options are released, including providing an adequate
level of detail on how the new system will impact employees.

o 	Involve employees to obtain their ideas and gain their ownership.
Employees are provided with multiple opportunities to be included in the
design process, including participation in the Core Design Team, the

9On July 25, 2003, the Core Design Team presented a set of five principles
to the Senior Review Advisory Committee as a guide for developing the
options to be presented in late September, building on the original four
principles.

Town Hall meetings, the focus groups, the field team, and an e-mail
mailbox for employee comments. Continued employee involvement is critical
as options are identified, regulations are proposed, and the human capital
system is implemented.

As the process to develop and implement a new human capital system at DHS
moves forward, we are recommending that as the DHS strategic planning
effort continues that the Secretary of DHS, in conjunction with the
Director of OPM, ensure that the human capital management system is fully
integrated with the accomplishment of the department's mission,
objectives, and goals. We are also recommending that the Secretary of DHS
build on the progress that has been made and ensure that the communication
strategy used to support the human capital system maximizes opportunities
for employee involvement through the completion of the design process, the
release of the system options, and implementation, with special emphasis
placed on seeking the feedback and buy-in of frontline employees in the
field.

OPM provided written comments on a draft of this report, which are printed
in appendix IV. DHS provided technical comments by e-mail.

DHS and OPM generally agreed with the contents of the report. However,
both DHS and OPM expressed a concern that we misunderstood the role of the
field team in the design process. Each described the role of the field
team as more limited than our original understanding. While gathering
additional information from DHS, NTEU, AFGE, and NAAE to clarify the role
and activities of the field team, we learned that its role evolved over
the course of the design effort, that it had no decision-making role in
the design process, and that it was used as a recurring focus group.
Accordingly, we changed the draft to reflect the field team's current
role. DHS and OPM also provided a number of technical suggestions that
have been incorporated where appropriate.

Background	The creation of DHS represents enormous leadership challenges,
encompassing opportunities in multiple management areas. Sustained and
inspired political and career leadership will be essential to successfully
implementing the transformation of DHS. Success will also largely depend
on its ability to attract and retain the right people; set the appropriate
priorities for the department; and build effective partnerships with the
appropriate public, private, and not-for-profit sector entities.

Mission and Organization of DHS

In establishing the new department, the Congress articulated a seven-point
mission for DHS:

o  Prevent terrorist attacks within the United States.

o  Reduce the vulnerability of the United States to terrorism.

o  Minimize the damage and assist in the recovery from terrorist attacks.

o 	Carry out all functions of entities transferred to the department,
including by acting as a focal point regarding natural and man-made crises
and emergency planning.

o 	Ensure that the functions of the agencies within the department that
are not directly related to securing the homeland are not diminished or
neglected.

o 	Ensure that the overall economic security of the United States is not
diminished by efforts aimed at securing the homeland.

o 	Monitor connections between illegal drug trafficking and terrorism,
coordinate efforts to sever such connections, and otherwise contribute to
efforts to interdict illegal drug trafficking.

DHS is generally organized into four mission-related directorates: Border
and Transportation Security, Emergency Preparedness and Response, Science
and Technology, and Information Analysis and Infrastructure Protection.

o 	The Border and Transportation Security directorate consolidates the
major border security and transportation operations under one roof,
including the U.S. Customs Service, parts of the Immigration and
Naturalization Service (INS), the Transportation Security Administration
(TSA), the Federal Law Enforcement Training Center (FLETC), The Federal
Protective Service, the Office for Domestic Preparedness from the
Department of Justice (DOJ), and part of the Animal and Plant Health
Inspection Service (APHIS).

o 	The Emergency Preparedness and Response directorate integrates domestic
disaster preparedness training and government disaster response and
includes the Federal Emergency Management Agency (FEMA), the Strategic
National Stockpile and the National Disaster

Medical System, the Nuclear Incident Response Team, the Domestic Emergency
Support Teams from DOJ, and the National Domestic Preparedness Office from
the Federal Bureau of Investigation (FBI).

o 	The Science and Technology directorate coordinates scientific and
technological advantages when securing the homeland and will include CBRN
Countermeasures Programs, the Environmental Measurements Laboratory, the
National Bio-Weapons Defense Analysis Center, and the Plum Island Animal
Disease Center.

o 	The Information Analysis and Infrastructure Protection directorate
accesses and analyzes intelligence, law enforcement data, and other
information involving threats to homeland security and evaluating
vulnerabilities from state and local agencies, the private sector, and
federal agencies such as the Central Intelligence Agency (CIA), FBI, and
the National Security Agency (NSA). It includes the Critical
Infrastructure Assurance Office, the Federal Computer Incident Response
Center, the National Communications System, the National Infrastructure
Protection Center, and the energy security and assurance program
activities of the Department of Energy.

In addition to the four mission-related directorates, the U.S. Secret
Service and the U.S. Coast Guard remain intact as distinct entities in
DHS; INS adjudications and benefits programs report directly to the Deputy
Secretary as the Bureau of Citizenship and Immigration Services; and the
Management Directorate is responsible for budget, human capital, and other
general management issues.

DHS's People 	DHS has approximately 155,000 civilian positions and 54,000
military positions in the U.S. Coast Guard, for a total of just over
209,000.10 (See

10Based on positions transferred to DHS as of March 8, 2003, according to
DHS, and GAO calculations using data from the Central Personnel Data File
(CPDF) as of March 31, 2003. Additional positions were scheduled to
transfer to the department after this date. Positions include full-time,
part-time, and vacant, and do not represent full-time equivalent (FTE)
employment or the total number of employees on board. The DHS-provided
data are based on determination orders, but one DHS official acknowledged
that the data were compiled differently by the various components.
Furthermore, these data are preliminary and are expected to be adjusted
based on continuing negotiations between DHS and other federal agencies.
DHS was authorized 144,901 civilian FTEs and 37,074 military FTEs in the
fiscal year 2003 budget, according to DHS. As of March 31, 2003, DHS had
160,201 full- and part-time civilian employees on board, according to
CPDF.

table 1.) Of the civilian employees, a vast majority transferred from
seven organizations: TSA, INS, Customs, FEMA, the U.S. Coast Guard, the
U.S. Secret Service, and APHIS. Of the civilian employees who transferred
from these seven organizations, approximately 90 percent are stationed
outside the Washington, D.C. metropolitan area. DHS employees work in over
300 metropolitan statistical areas.

Table 1: Positions Transferred to DHS as of March 8, 2003

                                                                    Positions 
              Originating Department          Originating Agency Transferreda 
                         Agriculture            Import and Entry        2,655 
                                                     Inspectionb 
                            Commerce     Critical Infrastructure 
                                                       Assurance 
                                                          Office 
                             Defense National Communications              105 
                                     System                      
                Department of Energy                                      101 
        Federal Emergency Management                             
                              Agency                                    8,542 
                    General Services                                          
                      Administration                                    1,713

Health and Human Services

                    Justice    Immigration and Naturalization     
                                                          Service      36,769 
                    Justice                                 Other         385 
             Transportation      United States Coast Guardc            60,403 
             Transportation        Transportation Security        
                                                   Administration      68,859 
             Transportation                                 Other 
                   Treasury     United States Customs Service          22,028 
                   Treasury     United States Secret Service            6,251 
                   Treasury   Federal Law Enforcement Training    
                                                           Center         922 
                   Treasury                                 Other         191 

Total 209,105

Source: DHS.

aThis column reflects positions - full-time, part-time, and vacant - and
does not represent FTE employment or the total number of employees on
board.

bThis represents a specific function from APHIS that was transferred to
DHS.

cThis represents both civilian and military U.S. Coast Guard positions.

These employees serve in positions ranging from inspectors, investigators,
police, and intelligence to attorneys and administrative services. DHS

employees are compensated under multiple pay and benefits systems, are
hired using varied authorities, and undergo performance appraisals with
different rating scales and factors.

According to OPM, just over 49,000, or just under one-third, of DHS
civilian employees are represented by unions. This includes 16 different
unions divided into 75 separate bargaining units. The 3 unions
representing the largest number of employees are AFGE, NTEU, and NAAE.
AFGE represents almost 33,000 employees who were transferred from INS, the
U.S. Coast Guard, FEMA, and others. NTEU represents over 12,000 employees
who were transferred largely from Customs. NAAE represents just over 2,000
employees who were transferred from APHIS.

Design Process Provides for Collaboration

DHS's and OPM's effort to design a new human capital system is
collaborative and facilitates participation of employees from all levels
of the department. The process is divided into three stages: research,
outreach, and drafting of initial personnel system options; review of the
options; and development of proposed regulations. First, the Core Design
Team conducted research on human capital approaches, communicated with and
gathered feedback from employees, and developed options. Second, the
Senior Review Advisory Committee will review these options and forward its
recommendations to the DHS Secretary and OPM Director. Third, the
Secretary and Director will then propose draft regulations for the human
capital system, engage in the statutory collaboration period, and issue
final regulations by early 2004. The stages include employees from DHS and
OPM, as well as representatives from the department's three largest
unions. This process is described in further detail in appendix II.

As figure 2 shows, the Core Design Team, the first stage of the design
process, is responsible for research, outreach, and drafting initial
options for the personnel system. This group is led by an equal number of
DHS and OPM executives. Members of the Core Design Team, which includes
employees from headquarters, the field, and unions, are full-time
participants who work on one of two subgroups: (1) pay and performance or
(2) labor and employee relations-reflecting the areas of Title 5 from

which DHS may deviate.11 The work of the Core Design Team is to result in
a broad range of options for the Senior Review Advisory Committee by late
September 2003.

Figure 2: The Three Stages of the Design Process and Their Roles

The second stage of the design process is made of the Senior Review
Advisory Committee. The committee's members include top executives from
DHS, OPM, and the three major unions and they are advised by a team of
external human capital experts. The committee is provided less than a
month to review the system options and forward its iteration for the

11The Homeland Security Act of 2002 gives DHS authority to deviate from
the requirements of: Chapter 43 - performance appraisal; Chapter 51 -
classification; Chapter 53 - pay rates and systems (except certain
provisions); Chapter 71 - labor-management and employee relations; Chapter
75 - adverse actions; and Chapter 77 - appeals.

Secretary and Director to consider.12 The committee's time frame for
completing this task is October 2003. During the committee's public
deliberations, they may choose to eliminate, create, and/or prioritize the
options, or may recommend implementation strategies.

Once the Secretary and Director receive the list of options from the
Senior Review Advisory Committee, they may edit, remove, or develop
alternatives to the proposed options as the third stage of the design
process. They expect to announce the proposed regulations in November
2003, which will trigger the statutory collaboration process so final
regulations can be issued in early 2004. As called for in the legislation,
employee representatives have 30 calendar days to comment and make
recommendations. The Secretary and Director are then to follow the
provisions of the statutory reconciliation process for no less than 30
days.13

DHS and OPM Leadership Stimulates and Supports the Human Capital
Transformation

DHS and OPM leaders have consistently underscored their personal
commitment to the design process and speak openly in support of it. When
the DHS legislation was under consideration, we testified that the single
most important element of successful reorganizations is the sustained
commitment of top leaders.14 In our report that describes the key
practices for successful mergers and transformations, we note that top
leadership that is clearly and personally involved provides stability and
an identifiable source for employees to rally around during tumultuous
times. The role of top leaders is also to ensure that transformation
efforts stay on course by setting priorities, focusing on critical issues,
and demonstrating a commitment to change.

12An informal "planning committee," or small working group of DHS, OPM,
and union senior executives was assembled to provide staff support,
highlight issues for discussion during public meetings, and potentially to
set the meeting agendas for the Senior Review Advisory Committee.

13Section 841 of the Homeland Security Act establishes a process for
collaboration with employee representatives to provide notice of the
proposed human resources management system, the opportunity to submit
comments, and consultation over the recommendations made.

14U.S. General Accounting Office, Homeland Security: Proposal for Cabinet
Agency Has Merit, But Implementation Will be Pivotal to Success,
GAO-02-886T (Washington, D.C.: June 25, 2002).

DHS and OPM leaders are fulfilling these critical roles. For example, the
DHS Under Secretary for Management and OPM's Senior Advisor for Homeland
Security cochair the Senior Review Advisory Committee. Other committee
members are officials in key leadership positions at both OPM and DHS and
the presidents of the three major unions.

Senior officials from DHS, OPM, and DHS's three largest unions are
directly involved in the workings of the Core Design Team. Top leaders of
DHS and OPM addressed employees at the Town Hall meetings, expressing
their support for the transformation, and solicited feedback from those
employees. Specific examples include the Under Secretary for Management
writing to DHS employees in April and May 2003 to express her support of
the design process and participating in a Town Hall meeting. Additionally,
the Under Secretary for Border and Transportation Security participated in
several Town Hall meetings to express his on-going support of the design
process and to respond to questions from DHS employees. The Under
Secretary for Emergency Preparedness and Response and the Commandant of
the U.S. Coast Guard also participated in Town Hall meetings. At these
meetings, union leaders have stood next to the agency leadership to
express their support for the process, according to agency officials.
Similarly, OPM's Associate Director for Strategic Human Resources Policy
and OPM's Senior Advisor for Homeland Security also addressed DHS
employees at Town Hall meetings, and responded to their questions.

DHS Personnel System will Need To Be Integrated with Mission and Program
Goals

DHS will need to ensure that the development of the human capital policy
options by the Core Design Team is integrated with the accomplishment of
DHS programmatic goals as defined in the forthcoming strategic plan.
Agency officials indicate that it is their intention that the personnel
system design will be consistent with the strategic plan. We have
reported, and the President's Management Agenda reiterates, that leading
organizations develop their workforce approaches as part of a strategic
human capital plan as strategies for accomplishing their mission and
programmatic goals. In light of this, we previously stated that the
success of the DHS transformation requires the department to link its
human capital strategy with its homeland security strategy.15

15GAO-03-102; and U.S. General Accounting Office, Homeland Security:
Management Challenges Facing Federal Leadership, GAO-03-260 (Washington,
D.C.: Dec. 20, 2002).

DHS is currently developing a strategic plan. This effort began in
mid-June and is expected to be completed by the end of September 2003 - a
target set by the Office of Management and Budget (OMB). As explained
previously, the Core Design Team began its work in late April 2003 and
expected to report its proposed options in late September 2003. According
to a DHS official leading the strategic planning effort, human capital
officials are engaged in drafting the strategic plan. DHS human capital
officials confirmed that they have reviewed drafts of the strategic plan.

Moving forward, it is critical that the Senior Review Advisory Committee,
the Secretary, and the Director make the link between the new human
capital system and the accomplishment of DHS's goals as outlined in the
DHS strategic plan. Once a strategic plan is in place, DHS can then
develop a strategic human capital plan that, in part, identifies core
competencies for staff as a tool for attracting, developing, and rewarding
contributions to mission accomplishment. For example, these competencies
will be critical to creating a performance management system - a key task
of the Core Design Team -that aligns daily operations with organizational
goals and creates a "line of sight" and shows how team, unit, and
individual performance can contribute to organizational results. We
recommended that DHS, in conjunction with OPM and OMB, create an effective
performance management system in December 2002.16 Furthermore, if DHS
decides to design and implement a pay-for-performance system, a set of
strategic goals and validated competencies will be required so that DHS
can identify the outcomes and results that employees are to be rewarded
for accomplishing.

                               Process Steered by
                               Guiding Principles

The Secretary and Director outlined four principles to serve as a
framework for the Core Design Team during their first meeting in April:

o 	The system has to support both the mission and the people charged with
implementing the mission.

o 	Design Team members must leave preconceived notions at the door. They
have an opportunity and responsibility to create a 21st century personnel
system that is fair, performance based, and flexible.

16GAO-03-260. We recently outlined key practices for effective performance
management systems in Results-Oriented Cultures: Creating a Clear Linkage
Between Individual Performance and Organizational Success, GAO-03-488
(Washington, D.C.: Mar. 14, 2003).

o  DHS must preserve and protect basic civil service principles.

o 	DHS must hold people at all levels accountable for performance. The
agency will link individual performance to organizational goals, with the
ability to identify and reward exceptional service and deal with chronic
poor performance. DHS can be a department that stands as a model of
excellence.

These principles can serve as core values for human capital management at
DHS - values that define the attributes that are intrinsically important
to what the new organization does and how it will do it. Furthermore, they
represent the institutional beliefs and boundaries that are essential to
building a new culture for the organization. Finally, they appropriately
identify the need to support the mission and employees of the department,
protect basic civil service principles, and hold employees accountable for
performance.

On July 25, 2003, the Core Design Team presented a set of five principles
to the Senior Review Advisory Committee as a guide for developing the
options to be presented in late September. These principles were drafted
by the Core Design Team and reviewed by the field team, using the original
four principles proposed by the Secretary and Director as a guide. The
five principles are to ensure that the options developed are (1) mission
centered, (2) performance focused, (3) contemporary and excellent, (4)
generate respect and trust, and (5) based on merit system principles and
fairness.

Consistent with the principles outlined by the Secretary and Director and
those presented to the Senior Review Advisory Committee, our interviews
with the human resource leaders in the five largest DHS components
identified two areas that they would like the new human capital system to
address: the new DHS personnel system should provide for competitive,
performance-based pay and should give managers the ability to quickly hire
the right people with the skills the agency needs. First, individuals we
interviewed hoped that the new system would address their concerns about
the disparities in pay rates across DHS and expressed an interest in
implementing performance-based pay, linked to the accomplishment of

DHS's mission, such that employees are more accountable.17 Two indicated
that they would like the Core Design Team to propose legislation to
address the differences in premium pay that currently exist. Second, and
beyond the immediate task of the Core Design Team, there was an
overwhelming interest in simplifying the hiring process.18 Officials in
one component expressed their discontent with the amount of time between
when a position is announced and when it is actually filled. One executive
expressed an interest in more flexibility in hiring because the perception
is that the current hiring process is only understandable to those already
in the federal government.19

Ambitious Timeline Established

DHS and OPM established a 9- to 10-month timeline for completing the
design process with the expectation that the final regulations will be
issued in early 2004. Agency officials have publicized this timeline at
Town Hall meetings across the country. Our reports on the successful
practices of mergers and transformations have noted that the establishment
of a timeline with specific milestones allows stakeholders to track the
organization's progress towards its goals. Publicizing the timeline and
meeting its milestones can illustrate building momentum and demonstrate
that real progress is being made.

The design process officially began in early April 2003 when the Core
Design Team convened for a 2-week leadership conference to learn about the
various human capital management systems within the component agencies as
well as those in other federal agencies and private firms. The Core Design
Team began its research full time in late April. This team is expected to
present its broad range of options to the Senior Review

17We have recently reported on leading practices in performance management
and performance-based pay. For example, see U.S. General Accounting
Office, Human Capital: Building on the Current Momentum to Address
High-Risk Issues, GAO-03-637T (Washington, D.C.: Apr. 8, 2003); and
GAO-03-488.

18As stated previously, the department may not deviate from the Title 5
provisions regarding civil service examination and selection procedures.
However, DHS has the opportunity to address some of its hiring concerns
through governmentwide human capital reform provisions in the Homeland
Security Act of 2002, which allow for category-based rating and selection
procedures and the ability to use direct-hire procedures.

19We have recently reported on major challenges in the federal hiring
process. For more information, see U.S. General Accounting Office, Human
Capital: Opportunities to Improve Executive Agencies' Hiring Processes,
GAO-03-450 (Washington, D.C.: May 30, 2003).

Advisory Committee in late September 2003. The Senior Review Advisory
Committee is allotted less than a month to develop its set of options in
October 2003. The Secretary and Director will then select the options that
will be submitted as officially proposed regulations available for
comment. They expect to announce the proposed regulations in November
2003, which will trigger the statutory collaboration process so final
regulations can be issued in early 2004.

Although the establishment of a clear timeline is positive, a majority of
DHS stakeholders we interviewed expressed concerns about its compressed
schedule. There is some understanding that the timeline reflects an effort
to take into account the final regulations in preparing the fiscal year
2005 budget that is submitted to the Congress in early 2004. However, a
number of human resource directors said the "self-imposed, short" timeline
would pose significant challenges for the Design Team. One director
commented that the timeline was "ambitious" considering the amount of
information that needs to be collected and analyzed. Most directors agreed
that the lack of sufficient time to perform these tasks could prevent the
Design Team from completing its work or cause it to propose options that
had not been thoroughly researched. Furthermore, another stakeholder
suggested that the timeline appears to allocate too much time to the
development of options and not enough time to the consideration of which
options to adopt. On the other hand, DHS and OPM leaders of the design
effort agree that the timeline is aggressive, but said that a shorter time
frame will serve to minimize employee anxiety. In addition, they said a
tight design time frame is needed to provide adequate time for
implementation, evaluation, and modification within the 5-year statutory
window available for establishing the new system.

While it is appropriate to develop and integrate the human capital systems
within the department in a quick and seamless manner so that the
department can begin to function as a cohesive entity, moving too quickly
or prematurely can significantly raise the risk of doing it wrong. Having
an ambitious timeline is reasonable only insofar as it does not impact the
quality of the human capital system that is created.

Design Participants Represent a Mix of DHS and OPM Employees

Overall, the members of the Core Design Team represent multiple
organizational components and the three major unions. The composition of
the team is important because of the visual sign it communicates regarding
which components are dominant and subordinate or whether the new
organization is a "merger of equals." It also helps employees see that
they are being represented and that their views are being considered in
the decision-making process.

The 48 participants of the Core Design Team include personnel experts from
OPM, DHS and its component agencies, line employees and managers from DHS
headquarters and field offices; and professional staff from the three
major unions.20 Specifically, the Core Design Team is composed of 24 DHS
employees, 16 employees from OPM, and 8 professional staff from the
unions. This includes 27 staff members, 5 supervisors, 12 managers, and 3
executives.21 Additionally, just over 60 percent of the members consider
themselves human capital professionals,22 and about two-thirds have
experience outside headquarters.23 (See figs. 3 and 4.) The majority of
human resource officials we interviewed consider themselves to be
adequately represented on the Core Design Team. Other characteristics of
the team members are described in appendix III.

20This summarizes data for those members on board as of July 11, 2003.
Since that date, membership has changed.

21Based on complete data for 47 participants.

22Based on complete data for 46 participants.

23Based on complete data for 39 participants.

Figure 3: Core Design Team Members Who Describe Themselves as Human
Capital Professionalsa

aBased on complete data for 46 participants.

Figure 4: Percent of Core Design Team Members with Work Experience Outside
Headquartersa

aBased on complete data for 39 participants.

According to DHS officials, DHS-specific slots on the Core Design Team
were filled by individuals chosen by agency executives after determining
the number of seats to be allocated to the different agency components. In

selecting team members, officials sought representation from across the
organizational components of the department, individuals with field
experience, and individuals with some expertise in human resources
management. Race, gender, and occupational diversity were other factors
considered when selecting participants. Additionally, NAAE selected one
DHS employee to participate on the team and AFGE and NTEU each selected
four professional staff members to participate.

Communications Plan Recently Completed

DHS recently completed a noteworthy communications strategy that provides
a structured and planned approach to communicate with DHS stakeholders
regarding the human capital system. The objectives of the plan are to:
raise awareness, disseminate information, and promote a clear
understanding of the new human capital system; manage stakeholder
expectations and address their concerns; and provide opportunities for a
two-way dialogue. We have recently reported that organizations undergoing
a transformation should establish a communication strategy that ensures a
consistent message is delivered and seeks to genuinely involve
stakeholders in the process.

The communications plan, completed in June 2003, represents an important
and substantive effort and contains four broad pieces that are consistent
with the key practices we have identified as important to successful
communication during transformations. First, the plan identifies internal
and external stakeholders, the concerns of each stakeholder group, and the
specific communication channels to be used to communicate to that
stakeholder group. Second, the plan articulates the key messages to be
delivered to each stakeholder group. Third, an action plan identifies the
communication channel to be used, the timeline for its use, and the DHS
and OPM staff responsible for implementation. Finally, the plan identifies
the feedback mechanisms to be used to ensure there is a two-way dialogue.

Moving forward, DHS faces some challenges in successfully implementing its
communications plan. First, in addition to the key messages articulated in
the plan, DHS will need to provide information to clarify areas of
confusion that were identified during our interviews. These include:

o 	the roles OPM, DHS, and the Senior Review Advisory Committee have in
the process;

o 	the factors that will influence the Secretary and Director's final
decisions on which options to propose;

o  the role of the contractor in the design process;

o 	the likelihood of the Core Design Team drafting legislative proposals
for areas DHS does not have authority to change (i.e., premium pay and
hiring);

o 	the possibility of there being multiple personnel systems instead of
one; and

o  the implementation process.

A second challenge will be to ensure that preexisting communication
channels within each departmental component deliver a message that is
consistent in tone and content with the central communication strategy. We
learned from three of the five components we interviewed that they use
additional vehicles for providing and receiving information from
employees. It may be appropriate to coordinate the messages sent to
employees through these additional vehicles to minimize the perception
that certain groups of employees are getting the "real" story.

Building on the current effort, DHS will need to provide adequate
opportunities for feedback once the options are released, including
providing an adequate level of detail on how the new system will impact
employees. The feedback mechanisms identified in the communications plan
focus on gathering employee feedback prior to the options being released.
For example, two of the three feedback mechanisms outlined in the
communications plan will be completed before the system options are
publicized. DHS also needs to ensure effective communication to employees
and stakeholders after the options are released. For example, DHS should
consider describing to employees how the comments collected during the
Town Hall meetings and focus groups informed the design process.
Furthermore, once options are selected, DHS will be faced with
communicating how the changes will impact specific jobs, rights and
protections, and daily responsibilities. DHS may find it necessary to
further tailor and customize the details of the new human capital system
to meet the specific needs of employees.

Design Process Provides for Employee Involvement

Employee perspectives on the design of the DHS human capital system are
sought through many mechanisms, including the Core Design Team with its
members from multiple DHS components, Town Hall meetings, focus groups,
the field team, and an e-mail mailbox for employee comments. This reflects
the Congress' desire that employees be allowed to participate in a
meaningful way in the creation of the new human capital system. Involving
employees in planning helps to develop agency goals and objectives that
incorporate insights about operations from a front-line perspective. It
can also serve to increase employees' understanding and acceptance of
organizational goals and improve motivation and morale.

The design process attempts to include employees by creating multiple
opportunities for employees to provide feedback. While activity updates
were provided in the DHS weekly newsletter and an e-mail mailbox for
employees to submit their suggestions and comments was used, multiple Town
Hall meetings and focus groups conducted between the end of May and the
beginning of July 2003 were held in ten cities across the United States.24
According to DHS and OPM officials, these cities were chosen to ensure
adequate representation of major DHS components and geographic diversity.
The goal of the events was to promote two-way communication between
management and employees and to gather employee perspectives on the
personnel practices that exist in their agency and any proposed changes
they would like to see. Each meeting hosted up to 200 DHS employees from
the surrounding cities.

At a typical Town Hall meeting, there was a general question and answer
segment in which local employees had the opportunity to ask questions
about the new system and express their overall concerns about DHS. If
participants' questions could not be addressed during the meeting due to
time constraints, they could write their questions on note cards and give
them to cognizant DHS and OPM officials in attendance. After the meeting,
the Core Design Team held a series of six focus group sessions in each
city to obtain their input and suggestions for the new human resource
system. In most cities, five of the six sessions were devoted to hear
employees' views while the remaining session heard the views of
supervisors and managers. Participants in the focus groups included both
Town Hall

24The ten cities were Atlanta, Georgia; Detroit, Michigan; El Paso, Texas;
Los Angeles, California; Miami, Florida; New York, New York; Norfolk,
Virginia; Seattle, Washington; Washington, D.C.; and Baltimore, Maryland.

meeting attendees and those who were not able to attend the Town Hall
session.

The degree to which the information gathered in these sessions was used to
inform the design process is not yet evident. On one hand, the Town Hall
meetings and focus groups gathered suggestions and concerns from large
numbers of employees from multiple organizational components in
geographically diverse locations. However, once options for the human
capital system are proposed it will be particularly important that
employees have adequate opportunities to make a worthwhile contribution.

In addition to the Town Hall meetings and focus groups, a field team made
of 32 front-line DHS managers and staff, some of whom were selected by the
major unions, was formed. During the design process, the field team
provided insights about the department's human capital challenges from a
front-line perspective. These insights were gathered during the three
meetings of the group --the field team was convened during the first week
of the 2-week April leadership conference, 2 days in July to react to the
subgroups' research, and for 2 days again in mid-September to react to the
draft personnel system options before their submission to the Senior
Review Advisory Committee in late September.

According to documents drafted before the April leadership conference,
provided by AFGE and NAAE, it was originally expected that the field team
would review the work of the Core Design Team on a "regular basis" and
then be used to "test the options against workplace realities." One
stakeholder added that it was his initial impression that the field team
would serve as an "extension of the Core Design Team," empowered to
provide input throughout the entire design process. However, over time,
the expected role of the field team evolved to that of a recurring focus
group that had no formal decision-making role in the design process.
Likewise, as the role for the field team evolved, so did its membership -
additional nonunionized DHS employees were added to the team. One DHS
official acknowledged that the field team has not had a great deal of
involvement in the process, and that the expected role of the team changed
over time. Officials in NTEU, AFGE, and NAAE additionally confirmed that
the role of the field team changed over time. One union president
described the diminished role as a "missed opportunity." This official
added that the lack of involvement and minimal communication with the Core
Design Team has made it difficult for the field team to make a worthwhile
contribution.

Conclusions 	DHS and OPM have developed a process to design the new
personnel system that is stimulated and supported by top leadership in
both organizations and is generally inclusive, both in terms of the
membership of the Core Design Team and multiple opportunities to provide
input. The process is also guided by core principles and an ambitious
timeline. Our research shows that these key attributes are indispensable
to successful transformations. This design process provides a model for
DHS to consider as it makes other important decisions about the
implementation and transformation of the department.

Building on this progress, DHS will need to ensure that the development of
the human capital policy options by the Core Design Team is integrated
with the accomplishment of DHS programmatic goals as defined in the
forthcoming strategic plan. Such a linkage can ensure that the new human
capital approaches support and facilitate the accomplishment of DHS's
goals and objectives - a fundamental principle of the human capital idea.
It will also assist the Core Design Team in identifying human capital
programs that support the DHS mission, including the development of a
performance management system which creates a "line of sight" that shows
how team, unit, and individual performance can contribute to overall
organizational goals.

Additionally, DHS has acknowledged that work lies ahead for implementing
better, more effective ways to communicate with and receive feedback from
its employees. The development of the communications plan is an important
and positive step. As DHS implements this plan it will need to provide
information on areas of confusion that were identified during our
interviews, including clarifying the role of DHS versus OPM in the system
development. DHS will also need to ensure that a consistent message is
communicated across DHS components. Finally, effective communication,
characterized by a two-way dialogue, will be central to engaging employees
in the remainder of the design process and ensuring it is transparent.
Ultimately, an effective two-way communication strategy can ease
implementation efforts. Once options for the human capital system are
proposed it will be particularly important that employees have adequate
opportunities to make a worthwhile contribution. Substantial involvement
of field staff in the development and implementation of the new human
capital system is essential given that over 90 percent of DHS civilian
employees are in the field. Continued employee involvement will help to
strengthen employee buy-in to the new human capital system. It is

important to consider and use the solicited employee feedback to make any
appropriate changes once this feedback is received.

Recommendations for Executive Action

DHS has developed an effective process to begin the formation of its new
human capital system. Moving forward, it is critical that the new human
capital system be linked to the DHS strategic plan and that DHS continue
to communicate with and involve its employees. Accordingly, we are
recommending that once the strategic plan is completed the Secretary of
DHS and the Director of OPM ensure that the options selected for the new
human capital system support and facilitate the accomplishment of the
department's strategic goals and objectives, as identified in the new
strategic plan. In addition, we recommend that the Secretary of DHS
clarify the role of the participants in the design effort and other areas
of confusion identified by stakeholders during our interviews.
Furthermore, consistent with the DHS communications plan, we recommend the
Secretary ensure the message communicated across DHS components is
consistent, and maximize opportunities for two-way communication and
employee involvement through the completion of the design process, the
release of the system options, and implementation, with special emphasis
placed on seeking the feedback and buy-in of front-line employees in the
field.

Agency Comments and Our Evaluation

OPM provided written comments on a draft of this report, which are printed
in appendix IV. DHS provided technical comments by e-mail.

DHS and OPM generally agreed with the contents of the report. However,
both DHS and OPM expressed a concern that we misunderstood the role of the
field team in the design process. Each described the role of the field
team as more limited than our original understanding. While gathering
additional information from DHS, NTEU, AFGE, and NAAE to clarify the role
and activities of the field team, we learned that its role evolved over
the course of the design effort, that it had no decision-making role in
the design process, and that it was used as a recurring focus group.
Accordingly, we changed the draft to reflect the field team's current
role. DHS and OPM also provided a number of technical suggestions that
have been incorporated where appropriate.

We are sending copies of this report to the Chairman and Ranking Minority
Member, Senate Committee on Governmental Affairs; the Chairman and Ranking
Minority Member, House Committee on Government Reform; the Chairman and
Ranking Minority Member, House Select Committee on Homeland Security; and
other interested congressional parties. We will also send copies to the
Secretary of the Department of Homeland Security and the Director of the
Office of Personnel Management. Copies will be made available at no charge
on the GAO Web site at http://www.gao.gov.

If you have any questions about this report, please contact me or Ed
Stephenson on (202) 512-6806. Key contributors to this report are listed
in appendix V.

J. Christopher Mihm Director, Strategic Issues

Appendix I

Practices and Implementation Steps for Mergers and Transformation

Implementing large-scale change management initiatives, such as mergers
and organizational transformations, is not a simple endeavor and requires
the concentrated efforts of both leadership and employees to realize
intended synergies and to accomplish new organizational goals. At the
center of any serious change management initiative are people-people
define the organization's culture, drive its performance, and embody its
knowledge base. Experience shows that failure to adequately address- and
often even consider-a wide variety of people and cultural issues is at the
heart of unsuccessful mergers and transformations. Recognizing the
"people" element in these initiatives and implementing strategies to help
individuals maximize their full potential in the new organization, while
simultaneously managing the risk of reduced productivity and effectiveness
that often occurs as a result of the changes, is the key to a successful
merger and transformation. Thus, mergers and transformations that
incorporate strategic human capital management approaches will help to
sustain agency efforts and improve the efficiency, effectiveness, and
accountability of the federal government.

GAO convened a forum on September 24, 2002, to identify and discuss useful
practices and lessons learned from major private and public sector
organizational mergers, acquisitions, and transformations. This was done
to help federal agencies implement successful cultural transformations,
including DHS. The invited participants were a cross section of leaders
who have had experience managing large-scale organizational mergers,
acquisitions, and transformations, as well as academics and others who
have studied these efforts. We reported the key practices participants
identified that can serve as the basis for subsequent consideration as
federal agencies seek to transform their cultures in response to
governance challenges. Since convening the forum, our additional work has
identified specific implementation steps for these practices.1 (See fig.
5.)

1GAO-03-669.

Appendix I
Practices and Implementation Steps for
Mergers and Transformation

Figure 5: Key Practices and Implementation Steps for Mergers and Transformations

Source: GAO.

Appendix II

Design Process

The process for creating a DHS human capital management system, jointly
developed by DHS and OPM, calls for a design team made up of DHS and OPM
employees and union representatives. The process is divided into three
stages: research, outreach, and drafting of initial personnel system
options; review of the options; and development of proposed regulations.
Early 2004 is the expected date for the issuance of the personnel system's
final regulations.

Core Design Team Is to Draft Options for the Personnel System

Pay and Performance and Labor and Employee Relations Subgroups

As the first stage of the design process, the Core Design Team engaged in
efforts that serve as the basis for the work of the other two components.
The 48 team participants included personnel experts from OPM, DHS, and its
component agencies; line employees and managers from DHS headquarters and
field offices; and professional staff from the three major unions.1
Members were assigned to one of two subgroups focusing on (1) pay and
performance or (2) labor and employee relations. The management consulting
firm Booz Allen Hamilton assisted the teams in their efforts.

Each subgroup had two coleaders, one from OPM and one from DHS, to guide
them. The subgroups performed their duties both collectively and
separately. They convened jointly when there were common issues to discuss
or to listen to presentations on human capital systems. For example, the
teams heard presentations on the performance management and
performance-based pay system at Internal Revenue Service (IRS); the human
capital management systems at FBI and NSA; and the performance management,
pay banding, and employee appeals process used at GAO.

The pay and performance subgroup focused its work on the three chapters of
Title 5 covering performance appraisal, classification, and pay rates and
systems. According to the subgroup's leaders, they identified 25
researchable areas and assigned small teams to explore each. Subgroup
members were assigned to work on multiple teams. Research areas included
the structure of pay ranges, methods for categorizing types of work, and
different appraisal and rating methods, for example. When asked about the
initial findings of their research, the leaders of the pay and

1As noted previously, this summarizes data for those members on board as
of July 11, 2003. Since that date, membership has changed.

                           Appendix II Design Process

performance subgroup indicated they identified many pay systems to
consider and evaluate.

The labor and employee relations subgroup focused on the three chapters of
Title 5 covering labor-management relations, adverse actions, and appeals,
to narrow its research. To gain a better understanding of these issues,
the group invited agencies such as the Merit Systems Protection Board and
the Federal Labor Relations Authority to make presentations. Areas that
were researched included different levels of employee, union, and
management rights; negotiation models; and how the success of labor
relations programs, adverse action systems, and appeals systems is
evaluated, for example. According to the subgroup leaders, they also
researched both leading and failed practices in their subject areas. The
group created interview guides to collect information in a consistent
format. When asked about the initial findings of the research, the
subgroup reported difficulty in identifying innovative labor relations
models that can be applied to the federal system.

Contractor Assistance	To help facilitate its efforts in the design of the
personnel system, DHS contracted with management-consulting firm Booz
Allen Hamilton to provide support in project management, research,
writing, staff support, and communications/publicity. In addition, it was
responsible for planning the Town Hall meetings and facilitating the focus
groups. According to the subgroup leaders, the contractor was expected to
help design the format for the option papers but would not likely be
involved in drafting the substance of the options.

Senior Review Advisory Committee Is to Develop Final Set of Options

The Senior Review Advisory Committee, the second stage of the design
process, will receive the broad set of options from the Core Design Team.
From this set of options the committee is expected to develop its final
list of options for the Secretary and Director to consider.2 Committee
members are permitted to eliminate, create, or prioritize the options. In
communicating its list of options to the Secretary and Director, it may
present the strengths and weaknesses of each. This committee could
potentially make recommendations related to implementation strategies.

2An informal "planning committee," or small working group of DHS, OPM, and
union senior executives was assembled to provide staff support, highlight
issues for discussion during public meetings, and potentially to set the
meeting agendas for the Senior Review Advisory Committee.

                           Appendix II Design Process

Meetings of the Senior Review Advisory Committee will be governed by the
Federal Advisory Committee Act,3 which requires meetings to be open to the
public.4

The Under Secretary for Management at DHS and the OPM Senior Advisor for
Homeland Security cochair the Senior Review Advisory Committee. Committee
members are officials in key leadership positions at both OPM and DHS. OPM
representatives include the Senior Advisor for Homeland Security, the
Associate Director for Strategic Human Resources Policy, the Associate
Director for Human Capital Leadership and Merit System Accountability, and
the Senior Policy Advisor to the Director and Chief Human Capital Officer.
DHS representatives include the Commissioner of Customs and Border
Protection, the Director of TSA, Director of the U.S. Secret Service,
Director of the Bureau of Citizenship and Immigration Services, and the
Director of Administration. Union representatives are the presidents from
AFGE, NTEU, and NAAE. External experts with particular knowledge and
experience in human capital management will serve as advisors.

DHS Secretary and OPM Director Are to Propose Regulations for the
Personnel System

The Secretary of DHS and the OPM Director make up the final stage of the
design process. Once they receive the list of options from the Senior
Review Advisory Committee, they may edit, remove, or develop alternatives
to the proposed options. The Secretary and the Director will then issue
proposed personnel rules for the department. As called for in the DHS
legislation, individuals affected by the proposed rules have 30 calendar
days to comment and make recommendations. The Secretary and Director are
then to follow the provisions of the statutory reconciliation process for
no less than 30 days.5

35 U.S.C. App. 2, section 10.

4Notice of the official establishment of the Senior Review Advisory
Committee was posted in the Federal Register on June 11, 2003. 68 Fed.
Reg. 34994.

5Section 841 of the Homeland Security Act establishes a process for
collaboration with employee representatives to provide notice of the
proposed human resources management system, the opportunity to submit
comments, and consultation over the recommendations made.

Appendix III

Characteristics of Core Design Team Members

Characteristics of the 48 members of the Core Design Team are described in
further detail in tables 2 through 6 below. The tables summarize data for
those members on board as of July 11, 2003. Since that date, membership of
the Core Design Team has changed.

         Table 2: Design Team Membership Agency Legacy Unit/Union Total

                                      DHS

APHIS 1 Coast Guard 2 Customs 3 FEMA 3 FLETC 2 INS 5 Secret Service 2
Treasury 3 TSA 3

DHS Total

OPM

Union Professional Staff	AFGE 4 NTEU 4

Total Union Professional Staff

Total Design Team

                                  Source: GAO.

                    Table 3: Who Selected Design Team Member

                                           Organization that Selected 
                        Current Employer                       Member   Total 
                                     DHS                         NAAE       1 
                                                                  DHS      23 
                               DHS Total                                   24 
                                     OPM                                   16 
                Union Professional Staff                         AFGE       4 
                                                                 NTEU       4 
          Total Union Professional Staff                                    8 

Total Design Team 48

Source: GAO.

Appendix III
Characteristics of Core Design Team
Members

                          Table 4: Subgroup Membership

                                 Subgroup     DHS   OPM     Union       Total 
                      Pay and Performance      12       9         4 
             Labor and Employee Relations      11       6         4 
                                  No data       1       1         0 
                                    Total      24   16            8 

Source: GAO.

          Table 5: Human Capital Professional versus Other Experience

                           Human Capital       Other                 
            Organization      Professional   Experience    No Data      Total 
                     DHS                12             12     0      
                     OPM                12              4     0      
                   Union                 4              2     2      
                   Total                28             18     2      

Source: GAO.

              Table 6: Years of Experience of Design Team Members

Agency

Average Years of Federal Experiencea

                            Average Years of Experience Outside Headquartersb

DHS 21.7

OPM 21.5

Union 12.8

Total 21.0

Source: GAO.
aBased on complete data for 41 participants.
bBased on complete data for 39 participants.

Appendix IV

Comments from the Office of Personnel Management

Appendix IV
Comments from the Office of Personnel
Management

Appendix V

                     GAO Contacts and Staff Acknowledgments

GAO Contacts J. Christopher Mihm or Edward Stephenson, (202) 512-6806

Acknowledgments	In addition to the persons named above, Ellen V. Rubin,
Tina Smith, Eric Mader, and Lou V.B. Smith made key contributions to this
report.

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