Human Capital: Effective Use of Flexibilities Can Assist Agencies
in Managing Their Workforces (06-DEC-02, GAO-03-2).		 
                                                                 
An essential element to acquiring, developing, and retaining	 
high-quality federal employees is agencies' effective use of	 
human capital flexibilities. These flexibilities represent the	 
policies and practices that an agency has the authority to	 
implement in managing its workforce. Congressional requesters	 
asked GAO to provide information on agency and union officials'  
views about the most effective human capital flexibilities,	 
additional flexibilities needed, and whether additional 	 
flexibilities could be implemented while also protecting	 
employees' rights. GAO was also asked to identify key practices  
for effective use of flexibilities. GAO interviewed the human	 
resources directors of the federal government's 24 largest	 
departments and agencies, and representatives of 4 national	 
organizations representing federal employees and managers. GAO	 
further focused its efforts on 7 federal agencies--Department of 
Air Force, General Services Administration, Internal Revenue	 
Service, International Trade Administration, U.S. Mint, State	 
Department, and Veterans Benefits Administration--interviewing	 
more than 200 managers, supervisors, human resources officials,  
and union representatives in headquarters and field locations.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-2						        
    ACCNO:   A05298						        
  TITLE:     Human Capital: Effective Use of Flexibilities Can Assist 
Agencies in Managing Their Workforces				 
     DATE:   12/06/2002 
  SUBJECT:   Employee incentives				 
	     Federal employees					 
	     Fringe benefits					 
	     Hiring policies					 
	     Human resources utilization			 
	     Personnel management				 
	     Personnel recruiting				 

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GAO-03-2

                                       A

Report to Congressional Requesters

December 2002 HUMAN CAPITAL Effective Use of Flexibilities Can Assist
Agencies in Managing Their Workforces

GAO- 03- 2

Letter 1 Results in Brief 3 Background 7 Agency Officials and Union
Representatives Cited Most Effective Human Capital Flexibilities 11

Agency Officials and Union Representatives Cited Need for Additional Human
Capital Flexibilities 25 Agency Officials Believed That Additional
Flexibilities Could

Coexist with Protection of Employee Rights, but Union Representatives Gave
Mixed Views 27 Key Practices Can Assist Agencies in Effectively Using
Flexibilities 29

Conclusions 42 Agency Comments and Our Evaluation 42

Appendixes

Appendix I: Objectives, Scope, and Methodology 47

Appendix II: Comments from the Office Personnel Management 50

Appendix III: Comments from the Internal Revenue Service 52

Appendix IV: Comments from the U. S. Mint 54

Appendix V: Comments from the International Trade Administration 55

Appendix VI: GAO Contacts and Staff Acknowledgments 56 Tables Table 1:
Human Capital Flexibilities That Agency Officials and

Union Representatives Cited as Most Effective 13 Table 2: Air Force CPMIS
Funding Strategy for 3Rs (Fiscal Years

2004 through 2009) 32 Figures Figure 1: Key Practices for Effective Use of
Human Capital

Flexibilities 5 Figure 2: Background Information on the Seven Selected
Agencies

with Examples of Exemptions from Title 5 Personnel Requirements 10

Abbreviations

AFMC Air Force Materiel Command CPDF Central Personnel Data File CPMIS
Civilian Personnel Management Improvement Strategy GS General Schedule GSA
General Services Administration IRM Information Resource Management IRS
Internal Revenue Service ITA International Trade Administration MSPB Merit
Systems Protection Board NAPA National Academy of Public Administration
OMB Office of Management and Budget OPM Office of Personnel Management PBO
performance- based organization PBS Public Buildings Service QSI quality
step increase SQA superior qualifications appointment VA Department of
Veterans Affairs VBA Veterans Benefits Administration VEOA Veterans
Employment Opportunities Act VRA Veterans Readjustment Appointment

Letter

December 6, 2002 The Honorable Joseph I. Lieberman Chairman The Honorable
Fred Thompson Ranking Minority Member Committee on Governmental Affairs
United States Senate

The Honorable Daniel K. Akaka Chairman The Honorable Thad Cochran Ranking
Minority Member Subcommittee on International Security,

Proliferation, and Federal Services Committee on Governmental Affairs
United States Senate

The Honorable Richard J. Durbin Chairman The Honorable George V. Voinovich
Ranking Minority Member Subcommittee on Oversight of Government

Management, Restructuring, and the District of Columbia Committee on
Governmental Affairs United States Senate

For years, many observers have viewed the federal civil service as
overregulated and inflexible. At the same time, federal agencies are
experiencing pervasive human capital challenges in acquiring and

developing staffs to meet current and emerging agency needs. These types
of challenges are likely to go unresolved if agencies do not take steps to
ensure that they have sufficient numbers of people in place with the right

skills, tools, and incentives to get the job done right. To deal with
these challenges, agencies need effective human capital flexibilities to
assist them. The recent deliberations over human capital flexibilities for
the new Department of Homeland Security underscore the importance of
ensuring that agencies have the capabilities needed to effectively achieve
their missions and manage their people.

In broad terms, human capital flexibilities represent the policies and
practices that an agency has the authority to implement in managing its
workforce to accomplish its mission and achieve its goals. These
flexibilities can include actions related to areas such as recruitment,
retention, compensation, position classification, incentive awards and
recognition, training and development, performance management and
appraisals, realignment and reorganization, and work arrangements and
work- life policies. The tailored use of such flexibilities for acquiring,
developing, and retaining talent is an important cornerstone of our model
of strategic human capital management, which we recently released to
assist in transforming agencies so they become more results- oriented,

integrated, and externally focused. 1 In previous reports and testimonies,
2 we have emphasized that in addressing their human capital challenges,
federal agencies should first identify and use the flexibilities already
available under existing laws and regulations and then seek additional
flexibilities only when necessary and based on sound business cases. In
this regard, as agreed with your offices, this report provides information
on

* agency officials* and union representatives* views on (1) the most
effective flexibilities for managing their workforces, (2) additional
flexibilities that would be the most helpful in managing their workforces,
and (3) whether employee rights could be protected if additional
flexibilities were authorized and implemented within agencies and

 key practices that agencies should implement for effective use of human
capital flexibilities, along with specific examples of such practices from
selected agencies.

We were also asked to identify actions that the Office of Personnel
Management (OPM) could take to facilitate the effective use of human
capital flexibilities throughout the federal government. We will be
discussing that issue in a separate report to be issued soon.

1 U. S. General Accounting Office, A Model of Strategic Human Capital
Management, Exposure Draft, GAO- 02- 373SP (Washington, D. C.: Mar. 15,
2002). 2 U. S. General Accounting Office, High- Risk Series: An Update,
GAO- 01- 263 (Washington, D. C.: January 2001); and Human Capital: Meeting
the Governmentwide High- Risk Challenge, GAO- 01- 357T (Washington, D. C.:
Feb. 1, 2001).

To address these issues, we reviewed relevant reports and interviewed
cognizant officials from OPM, the Merit Systems Protection Board (MSPB),
and the National Academy of Public Administration (NAPA). In addition, we
interviewed the human resources directors of the federal government*s 24
largest departments and agencies and representatives from four national

organizations representing federal employees and managers. As agreed, we
further focused our review on seven federal agencies: the Department of
the Air Force, General Services Administration (GSA), Internal Revenue
Service (IRS), International Trade Administration (ITA), U. S. Mint
(Mint), Department of State (State), and Veterans Benefits Administration
(VBA). At the headquarters and various field locations of the seven
agencies, we

collected documents on their use of human capital flexibilities and
interviewed over 200 managers and supervisors, human resources officials,
and union representatives. We selected the seven agencies for various
reasons, including their variety of existing human capital challenges and
their range in usage of available human capital flexibilities. Our agency
selection process was not designed to identify examples that could be
considered representative of all the human capital flexibilities used at
the seven agencies reviewed or the federal government as a whole. We
conducted our review in accordance with generally accepted government

auditing standards. (See app. I for additional information on our
objectives, scope, and methodology.)

Results in Brief According to the agency officials and union
representatives we interviewed, work- life policies and programs, such as
alternative and

flexible work schedules, transit subsidies, child care assistance, and
employee assistance programs, are among the most effective human capital
flexibilities available in federal agencies for managing the

workforce to achieve agency missions and accomplish agency goals. These
flexibilities are effective because they serve as important recruitment
and retention tools as employees weigh the balance between their work life
and leisure time. In addition, agency and union officials frequently cited
the

effectiveness of monetary recruitment and retention incentives, including
recruitment and relocation bonuses for hard- to- fill positions; special
hiring authorities, such as student employment and outstanding scholar
programs; and incentive awards to employees for superior job performance
and specific accomplishments, including cash and time- off awards.

Although agencies* first priority should be to improve their human capital
management by using the authorities already available to them, we
identified five categories of additional human capital flexibilities that

agency officials and union representatives cited as most helpful if
authorized for their agencies. These additional authorities include (1)
more flexible pay approaches, (2) greater flexibility to streamline and
improve the federal hiring process, (3) increased flexibility in
addressing employees* poor job performance, (4) additional workforce
restructuring

options, and (5) expanded flexibility in acquiring and retaining temporary
employees. These suggestions by agency officials and union representatives
provide a starting point for executive branch decision makers and Congress
to consider as they seek to reform federal human capital policies and
practices. Key aspects of these additional authorities are included in
various legislative initiatives under consideration by Congress. In other
cases, however, additional analysis may be needed to ensure that any new
authorities are granted and implemented consistent with a focus on program
results, merit, and other important federal employment goals.

The agency managers and supervisors and human resources officials we
interviewed generally agreed that additional human capital flexibilities
could be authorized and implemented in their agencies while also ensuring
protection of employees* rights. Union representatives, however, expressed
a variety of opinions on the ability of agencies to protect

employee rights. Some believed that employee rights could be protected
with additional managerial flexibility, while others were concerned that
managers would abuse their authority and agency leaders would not take
appropriate disciplinary action. According to agency and union officials,
one of the most effective ways to ensure protection of employees* rights
when implementing these flexibilities is to make certain that supervisors
and employees are fully aware of the available flexibilities, the
procedures to use them, and the associated rights and responsibilities of
both managers and employees when using them. In addition, they frequently
mentioned the importance of securing the assistance and support of agency
human resources officials in implementing and monitoring the use of
flexibilities within the agency.

Based on our interviews with human resources directors from across the
federal government and our previous human capital work, we identified six
key practices that agencies should implement to use human capital
flexibilities effectively. Figure 1 identifies the practices and provides
some examples from the seven federal agencies we reviewed.

Figure 1: Key Practices for Effective Use of Human Capital Flexibilities

* 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 plan for how they will use and fund the authorities. For
example, the Air Force developed a series of initiatives that use
flexibilities to recruit and retain civilian employees with high technical
skills. The initiatives are accompanied by both funding and legislative
strategies designed to promote succession planning while ensuring the
resultant workforce is cost- effective.

 Ensure stakeholder input in developing policies and procedures. Agency
leaders, managers, employees, and employee unions must work together and
in a constructive and cooperative manner to effectively implement any
flexibility in order to reach agreement on the need for change, the
direction and scope that change will take, and how progress will be
assessed. For example, employees at the Mint*s San Francisco coin- making
plant (with assistance from the local union) were able to vote on various
options for implementing an

alternative work schedule for the facility.  Educate managers and
employees on the availability and use of flexibilities. Agencies* human
capital offices need to ensure that they have effective campaigns 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 employees* rights related to the use of these authorities. For
example, GSA in Philadelphia educates its supervisors on human capital
flexibilities with its Human Resource Solutions Series training, which
includes topics such as performance management, position classification,
and staffing.

 Streamline and improve administrative processes. Agencies should
streamline administrative processes for using flexibilities and review
self- imposed constraints that may be excessively process- oriented. For
example, GSA automated its on- the- spot cash award process to allow
supervisors to initiate these awards by accessing the agency*s intranet
Web site rather than the previous process of completing a lengthy
justification and sending the form to the personnel office for review.

 Build transparency and accountability into the system. Agencies should
delegate authority to use flexibilities to appropriate levels within the
agency. Agencies must also develop clear and transparent guidelines for
using flexibilities and then hold managers and supervisors accountable for
their fair and effective use. For example, IRS developed guidelines for
its managers to determine if a job applicant qualifies for a recruitment
incentive, which helps to ensure fair and consistent application of such
flexibilities. Agencies can also make public the extent to which the
flexibilities are used and the results of the flexibilities. Finally,
agencies* use of flexibilities should, as appropriate, be subject to
internal and external evaluations.

 Change the organizational culture. Agencies need to address managers*
and supervisors* concerns that employees will view the use of some
flexibilities as unfair. Also, with appropriate accountability mechanisms
in place, agencies can begin to foster an organizational culture that
encourages managers to develop creative approaches and take appropriate
risks. For example, IRS in Oakland hired a consultant to conduct training
for managers that promotes creative thinking, empowerment for decision
making, and prudent risk taking. The training course is an ongoing process
with managers returning each year to ensure their continued comfort with
and use of the principles covered in the training.

Source: Interviews with human resources directors and prior GAO work.

Agency and union officials identified several significant reasons why
agencies have not made greater use of the human capital flexibilities that
are available to them. These reported barriers that have hampered agencies
in maximizing their use of available flexibilities included agencies* weak
strategic human capital planning and inadequate funding for using these
flexibilities given competing priorities; managers* and supervisors* lack
of awareness and knowledge of the flexibilities; managers* and
supervisors* belief that approval processes to use specific flexibilities
are often burdensome and time- consuming; and managers* and supervisors*

concerns that employees will view the use of various flexibilities as
inherently unfair, particularly given the common belief that all employees
must be treated essentially the same regardless of job performance and
agency needs.

The insufficient and ineffective use of flexibilities can significantly
hinder the ability of federal agencies to recruit, hire, retain, and
manage their human capital. To deal with their human capital challenges,
it is important for agencies to assess and determine which human capital
flexibilities are

the most appropriate and effective for managing their workforces. Congress
recently debated the extent of personnel flexibilities that should be
granted to the new Department of Homeland Security. While this decision
was important to how the new department will operate, how personnel
flexibilities are implemented is equally important. Thus, to ensure more
effective use of any human capital flexibility, it is critical that all
agencies (1) plan strategically and make targeted investments, (2) ensure
stakeholder input in developing policies and procedures, (3) educate
managers and employees on the availability and use of flexibilities, (4)
streamline and improve administrative processes, (5) build transparency
and accountability into their systems, and (6) change their

organizational cultures. By more effectively using flexibilities, agencies
would be in a better position to manage their workforces, assure
accountability, and transform their cultures to address current and
emerging demands.

OPM and six of the seven selected agencies provided comments on a draft of
this report. The agencies either generally agreed with the information
presented or did not express an overall opinion about the report. OPM was
pleased that our report acknowledges the need for greater personnel
flexibilities in cases where existing law constrains OPM in providing

policies and programs to assist agencies in accomplishing their missions.
However, OPM commented that authorizing additional legislative
flexibilities to agencies on a case- by- case basis could create an unfair
competitive advantage for certain agencies. OPM also stressed in its
comments that agencies should use the outstanding scholar hiring program
as a supplement to competitive examining and not use the program as a
general approach to circumvent the standard competitive hiring process.
IRS commented that its recently acquired statutory flexibilities were

instrumental to achieving the agency*s transformation to a modern,
business- like organization. The Department of Defense (Defense) and GSA
suggested that our report more fully discuss the drawbacks of
telecommuting. The Mint commented that the report provides an

objective, balanced review and assessment of the issues surrounding the
implementation of human capital flexibilities and noted that the report
would serve as a useful tool for policymakers. ITA commented that the
report thoroughly and comprehensively addresses the critical issue of the
programs needed to manage the federal workforce and emphasized the need
for the additional flexibilities mentioned in the report. The Department
of Veterans Affairs (VA) agreed with the information presented in the
report and provided no additional comments. State did not provide comments
on this report. Where appropriate, we made changes to the report to
address the comments we received.

Background Federal managers have complained for years about the rigid and
elaborate procedures required for federal personnel administration, often
expressing the need for more flexibility within a system that has
traditionally been based on uniform rules. Reformers have long sought to
decentralize the personnel system and simplify the rules, arguing that
however well the system may have operated in the past, it is no longer
suited to meet the needs of a changing and competitive world. In 1983, for
example, NAPA published a report critical of the excessive constraints on
federal

managers, including constraints on their human resources decisions. 3 As
part of the response to these criticisms, OPM decentralized and delegated
many personnel decisions to the agencies and has encouraged agencies to

use human capital flexibilities to help tailor their personnel approaches
to accomplish their unique missions. Our strategic human capital model
also advocates that agencies develop a tailored approach to their use of
available flexibilities by taking advantage of those flexibilities that
are appropriate for their particular organizations and their mission
accomplishment. 4 Because of this tailoring, the federal personnel system
is

becoming more varied, despite its often- cited characterization as a
*single employer.* 3 National Academy of Public Administration,
Revitalizing Federal Management: Managers and Their Overburdened Systems
(Washington, D. C.: 1983). 4 GAO- 02- 373SP.

The trend toward increased flexibility has manifested itself a number of
ways, including the efforts of some agencies to seek congressional
approval to move away from the personnel provisions of Title 5 of the U.
S. Code that have traditionally governed much of the federal government*s
civil service system. 5 As noted by OPM in a 1998 report, 6 federal
agencies*

status relative to these Title 5 personnel requirements can be better
understood by thinking of them on a continuum. On one end of the continuum
are federal agencies that generally must follow Title 5 personnel
requirements. These agencies do not have the authority, for example, to
establish their own pay systems. On the other end of the continuum are

federal agencies that have more flexibility in that they are exempt from
many Title 5 personnel requirements. For example, Congress provided the
Tennessee Valley Authority and the Federal Reserve Board with broad
authority to establish their own personnel systems and procedures. The
movement in the direction of greater flexibility, in fact, has gained
momentum to the extent that about half of federal civilian employees are
now exempt from at least some of the personnel- related requirements of
Title 5.

In addition to receiving congressional authorizations for exemptions from
the personnel- related requirements of Title 5, other mechanisms are
available to introduce human capital innovations and flexibilities within
federal agencies. OPM has the authority to review and make changes to its
existing regulations and guidance to provide agencies with additional
flexibilities. Additionally, a federal agency can obtain authority from
OPM to waive some existing federal human resources laws or regulations
through a personnel demonstration project. The goal of these demonstration
projects is to encourage experimentation in human resources management by
allowing federal agencies to propose, develop, test, and evaluate changes
to their own personnel systems. In some cases,

Congress has allowed some agencies to adopt alternatives that have been
tested and deemed successful. For example, more flexible pay approaches
that were tested within the Department of the Navy*s China Lake

5 Title 5 laws (or requirements) refer to those personnel management laws,
procedures, and associated functions generally applicable to federal
employees. Most federal personnel laws governing topics such as
classification, appointment, pay and benefits, and adverse action are
contained in Title 5. Title 5 also contains laws unrelated to federal
personnel issues, such as the Administrative Procedure Act and the Freedom
of Information Act, that are also applicable to federal agencies.

6 U. S. Office of Personnel Management, HRM Policies and Practices in
Title 5- Exempt Organizations (Washington, D. C.: August 1998).

(California) demonstration project in the early 1980s were eventually
adopted by other federal agencies, such as the Department of Commerce*s
National Institute of Standards and Technology. Exemptions from Title 5
personnel requirements within our seven selected

agencies help to illustrate the gradations of flexibility. IRS, for
example, represents an agency with broad authority related to its human
capital management. Efforts to reform IRS led to provisions under the IRS
Restructuring and Reform Act of 1998, which gave the Secretary of the
Treasury various pay and hiring flexibilities not otherwise available
under Title 5, such as the authority to establish new systems for hiring
and staffing, compensation, and performance management. State and ITA are
examples of organizations in which some employees are not subject to Title
5, while the remainder of the organization is covered. In this case,
Foreign Service employees at State and ITA are outside of Title 5. For the
remaining four agencies we included in our review, the majority of their
employees are covered under the personnel requirements of Title 5, with
some limited exemptions. Air Force, for instance, has made use of
flexibilities under the demonstration project authority and currently
participates in two such demonstration projects, one involving laboratory
personnel and another for the civilian acquisition workforce. In addition,
several of our selected agencies, such as GSA and VBA, received additional
flexibility through legislative authority to offer voluntary separation
incentive payments, commonly known as buyouts, to help restructure their
workforces. Figure 2 provides background information on the seven agencies
along with a summary of some of their related exemptions from Title 5
personnel requirements.

Figure 2: Background Information on the Seven Selected Agencies with
Examples of Exemptions from Title 5 Personnel Requirements Department of
the Air Force: The mission of the Air Force, a component of the Department
of Defense, is to defend the United States and protect its interests
through aerospace power. The Air Force employs over 150,000 civilians in a
full range of occupations. Although the majority of civilians employed by
the Air Force are subject to Title 5 requirements, Air Force Research
Laboratory employees, for example, are involved in a demonstration
project, which features a contribution- based compensation system.

General Services Administration: GSA is one of three central management
agencies in the federal government. The agency's mission is to support
federal employees wherever they work by, among other things, providing
work space, furniture, equipment, supplies, tools, and travel services.
GSA also oversees telecommuting centers and federal child care centers and
preserves historic buildings. The agency employs approximately 14,000
people, the majority of whom are covered by Title 5. Congress authorized
GSA to offer voluntary separation incentive payments to help shape its
workforce. Internal Revenue Service: IRS is a component of the Department
of the Treasury. The agency's mission is to provide America's

taxpayers with top quality service by helping them understand and meet
their tax responsibilities and by applying the tax law with integrity and
fairness to all. IRS employs approximately 100,000 full- time employees.
Under the IRS Restructuring and Reform Act of 1998, the Secretary of the
Treasury has pay and hiring flexibilities that are not generally available
to Title 5 agencies. Some of these flexibilities are intended to allow IRS
managers more discretion in rewarding good performers and in making
employees accountable for their performance.

International Trade Administration: ITA is the lead unit for trade in the
Department of Commerce. The agency promotes U. S. exports of manufactured
goods, nonagricultural commodities, and services. It also participates in
formulating and implementing U. S. foreign trade and economic policies and
monitors market access and compliance of U. S. international trade
agreements. ITA employs approximately 2,000 full- time employees. About
300 of these employees are Foreign Service employees, who are not subject
to Title 5.

U. S. Mint: The U. S. Mint is a bureau within the Department of the
Treasury. The primary mission of the agency is to produce an adequate
volume of circulating coinage for the nation to conduct its trade and
commerce. The Mint's workforce consists of approximately 2, 600 employees
with a wide mix of white- collar and blue- collar occupations. Of these
employees, the rates of basic pay for positions within the police forces
of the U. S. Mint are fixed without regard to the pay provisions of Title
5, except for minimum and

maximum rates. Department of State: State is the principal agency for
advancing and protecting U. S. interests abroad by conducting U. S.
foreign policy, and supporting and coordinating the activities of all
other U. S. government agencies operating abroad. State has approximately
7,300 civil service employees and 9, 400 Foreign Service employees.

Veterans Benefits Administration: The mission of VBA* an agency within the
Department of Veterans Affairs* in partnership with the Veterans Health
Administration and the National Cemetery Administration, is to provide
benefits and services to veterans and their families in a responsive,
timely, and compassionate manner in recognition of their service to the
nation. VBA employs approximately 13,000 employees, the majority of whom
are under Title 5. Like GSA, the agency received special legislative
authority to provide voluntary separation incentive payments to help shape
its workforce. Source: Agency Web sites and planning documents.

Even under current Title 5 personnel provisions and their applicable
regulations, efforts to reform and improve the personnel system have
provided many human capital flexibilities for agencies to use. Within
broad parameters, such as adherence to merit system principles 7 and
employee protection from prohibited personnel practices, 8 these
flexibilities offer the agencies effective ways to accomplish their
missions while maintaining the key values of a centralized system. For
example, agencies have many flexibilities available to help them
restructure and realign their workforces. Moreover, agencies have numerous
compensation flexibilities that authorize them to provide additional
direct payments to support their recruitment, relocation, and retention
efforts, although some of them may require the approval of OPM or the
Office of Management and Budget (OMB).

Agency Officials and Today, federal agencies are facing many human capital
challenges. With Union Representatives

the increasing numbers of employees retiring and the numbers of employees
who will be eligible to retire in the near future, along with Cited Most
Effective

competition from private companies, federal agencies are in a struggle to
Human Capital

recruit and retain highly skilled employees. In response to these
Flexibilities

challenges, agencies need to use the various human capital flexibilities
that are available to them in managing their workforces to achieve agency
missions and accomplish goals. Our discussions with agency officials and
union representatives revealed numerous human capital flexibilities that
they deemed effective in managing their workforces. These flexibilities
encompassed broad areas of personnel- related actions such as recruitment,
retention, compensation, position classification, incentive awards and
recognition, training and

development, performance management and appraisals, realignment and
reorganization, and work arrangements and work- life policies. On the
basis of these discussions, we identified the flexibilities that were the
most

7 Section 2301( b) of Title 5 of the U. S. Code stipulates that federal
personnel management should be implemented consistent with merit system
principles, including recruiting or promoting employees based on merit,
retaining or separating employees based on performance, and protecting
employees from improper influence.

8 Section 2302( b) of Title 5 of the U. S. Code sets out personnel actions
that may not be taken by any employee who can take, direct others to take,
recommend, or approve any personnel actions; examples of prohibited
personnel actions include discrimination, coercion of

political activity, reprisal against whistleblowers, and nepotism.

frequently cited by agency and union officials as being the most effective
for managing their agencies* workforces. These flexibilities include 
work- life programs, such as alternative work schedules, child care

assistance, and transit subsidies;  monetary recruitment and retention
incentives, including retention and

relocation bonuses and retention allowances;  special hiring authorities,
such as student employment and outstanding

scholar programs; and  incentive awards, which range from performance-
based cash awards to

time- off awards to symbolic items of nominal value, such as plaques and
T- shi rt s.

Table 1 provides a summary of these flexibilities and the cited benefits
of implementing them.

Table 1: Human Capital Flexibilities That Agency Officials and Union
Representatives Cited as Most Effective

Flexibility Cited benefits of flexibility

Work- life policies and programs:

Alternative work schedules  Increase employee morale  Allow employees to
be more flexible in accomplishing

job responsibilities  Decrease need for employees to use accumulated
leave

Employee assistance programs  Assist agencies in addressing personnel
issues that might be affecting agency operations  Help employees resolve
problems that might be affecting personal health or job performance

Child care centers and  Help recruit skilled workers and retain valuable
assistance employees

 Can aid lower paid employees with assistance  Increase productivity
among users because centers

often mean more reliable child care and fewer employee absences

Subsidized transportation  Reduces congestion in transportation systems 
Decreases smog in local commuting areas  Aids some employees in obtaining
reliable transportation by subsidizing costs

Telecommuting  Decreases employee stress and commuting costs  Helps to
reduce traffic congestion and smog  Allows employees to be more
productive by decreasing their commuting time

Monetary recruitment and retention incentives:

Superior/ special qualification  Allow agencies more control over entry-
level salaries appointments  Permit agencies to match the prior salaries
of new

hires coming from the private sector  Allow agencies to more easily hire
employees with

highly specialized skills in areas such as information technology and
engineering

Recruitment bonuses  Assist agencies in recruiting employees for hard-
to- fill positions  Help agencies to retain employees for reasonable

periods (i. e., written service agreement) Relocation bonuses  Assist
agencies in relocating employees for hard- to- fill

positions  Help agencies to retain employees for reasonable

periods (i. e., written service agreement)

(Continued From Previous Page)

Flexibility Cited benefits of flexibility

Retention allowances  Assist agencies in retaining employees who possess
unusually high or unique qualifications or who fill essential needs for
the agencies  Allow agencies to terminate the incentive payments when no
longer needed  Can be provided on a group basis to help agencies retain
groups or categories of employees

Special hiring authorities:

Student educational  Allow agencies and student employees to test whether
employment programs (i. e.,

the students would be suitable matches for possible *co- op* programs)
permanent employment  Allow agencies to quickly and easily hire needed
staff

who may be eligible for permanent positions with the agencies

Outstanding scholar program  Allows agencies to quickly hire high-
quality entry- level employees (i. e., college graduates with superior
academic credentials) in certain occupations Veteran- related hiring 
Allow agencies to quickly hire needed talent authorities  Allow veterans
to apply for positions not generally open

to nonfederal employees

Incentive awards:

Performance- and  Allow supervisors to recognize employees* outstanding

accomplishment- based cash performance or accomplishment either at the end
of

awards performance appraisal periods or at a specific points in

time for special acts or contributions  Can provide supervisors with
autonomy to offer awards

Quality step increases  Allow agencies to provide permanent pay increases
on the basis of outstanding performance as demonstrated in employees*
performance appraisals  Do not require agencies to conduct an annual
review and approval to continue payments, as do retention allowances

Time- off awards  Allow employees to receive awards other than money 
Allow employees to take time off from work when most convenient for
agencies and employees

Group incentives (i. e.,  Allow both agencies and employees to benefit
from gainsharing and goalsharing) increases in productivity and decreases
in costs  Allow both agencies and employees to benefit from the

achievement of specified goals that enhance the success of the
organization*s mission

Honorary and informal  Give supervisors maximum flexibility to be
creative in recognition awards how they recognize their employees

Source: Agency and union officials interviewed.

Agency and Union Officials Agency officials and union representatives
cited work- life programs among

Cited Work- Life Programs the most effective flexibilities for recruiting,
motivating, and retaining staff. among the Most Effective

These programs are offered to help employees balance their work and
Flexibilities

family lives and include alternative work schedules, employee assistance
programs, child care centers and assistance, transit subsidies, and
telecommuting options. OPM has strongly supported the use of these family-
friendly programs, indicating that they can help to attract and retain
quality employees, boost morale, and reduce unscheduled leave. Our recent
report looking at human capital challenges at the Securities and Exchange
Commission revealed how agencies can sometimes overlook the effectiveness
of these work- life programs in recruiting, retaining, and motivating
staff. 9 The following is additional information about the effectiveness
of these work- life flexibilities.

Alternative work schedules. Federal agencies generally have the authority
to determine the hours of work for their employees to ensure that agencies
meet organizational goals. Agencies may establish hours of work and
scheduling flexibilities to replace the traditional schedules of 8 hours
per day and 40 hours per week, such as full- time and part- time, overtime
hours, and flexible work schedules. Scheduling flexibilities, such as
alternative work schedules, were among the effective flexibilities most
cited by agency managers and supervisors, human resources officials, and
union representatives. Although some supervisors told us that such
schedules can be a challenge to manage, these supervisors stated that this
scheduling flexibility increases employee morale, strongly motivates
employees, and allows employees to be more flexible in accomplishing job
responsibilities. For example, IRS officials told us that the agency has
made use of alternative work schedules since the early 1980s and that this
flexibility is attractive to both current and potential employees.
Supervisors at the San Francisco Mint said that the use of alternative
work schedules reduces the amount of accumulated leave taken because
employees can accomplish personal errands and tasks on their days off.
According to human resources officials in GSA*s San Francisco region,
about 1,300 of the region*s 1,500 employees make use of alternative work
schedules. Employee assistance programs. Through these programs, agencies
can

provide a range of free, confidential counseling and referral services to
9 U. S. General Accounting Office, Securities and Exchange Commission:
Human Capital Challenges Require Management Attention, GAO- 01- 947
(Washington, D. C.: Sept. 17, 2001).

assist employees who may be experiencing personal problems affecting their
job performance or personal health. Agency and union officials said that
these programs can be valuable in helping employees deal with issues

such as work and family pressures. IRS supervisors in Philadelphia told
us, for example, that IRS*s employee assistance program offers employees
and their family members a way to address both work- related and
nonworkrelated issues and that the employees they had referred to the
program had found the services to be quite beneficial. Officials at
Langley Air Force Base told us that both civilian and military personnel
use the agency*s employee assistance programs, which were designed to meet
the needs of various employee groups.

Child development centers and child care assistance. Many federal agencies
provide on- site or near- site child development centers to help employees
with child care needs. Civilian federal agencies recently obtained
authority through federal statute to use appropriated funds from salaries
and expenses to assist their lower income employees with the cost of child
care. 10 Agencies can also assist their employees with information about
other organizations that can help employees locate quality child care
services. At some of the field locations we visited, agencies provided
onsite or near- site child care for their employees. Agency and union
officials said that this assistance greatly aids employees in focusing on
their job responsibilities by providing more reliable child care, and that
reliable child care often results in fewer employee absences. A national
union representative pointed out that child care subsidies have allowed
agencies

to retain employees and save money because they do not have to train new
staff members. According to OPM, there are approximately 1,000 work- site
child care centers sponsored by civilian and military agencies in the
federal government.

Transportation subsidies. In April 2000, an executive order was signed
that required all federal agencies to implement a transportation fringe
benefit program for their employees. 11 This transit subsidy program was
designed to encourage federal employees to use mass transportation for
commuting to and from work to reduce traffic congestion and air pollution.
Federal agencies in the national capital region were required to implement
a *transit pass* program by providing eligible employees with subsidies in

10 Public Law 107- 67, Nov. 12, 2001. 11 Executive Order 13150, signed
Apr. 21, 2000.

the form of subway farecards. Agencies generally have the flexibility to
make this program available to their employees nationwide and can provide
employees with transit passes of up to $100 per month for each employee
who uses public or vanpool transportation. Many supervisors and union
representatives we interviewed said that this transit subsidy is highly
valued by employees. Officials in the San Francisco Bay Area made
particular note of the benefits of using public transportation given the

traffic congestion in the area. Telecommuting Cited as

While many agency managers and supervisors, human resources officials,
Beneficial in Certain Cases, but and union representatives supported the
effectiveness of work- life Some Doubted Its Effectiveness

programs, our discussions of telecommuting with these officials brought
and Stressed the Need for

about strongly mixed opinions. Telecommuting, also referred to as Careful
Management

telework or flexiplace, involves work arrangements that allow an employee
to work away from the traditional work site, either at home or at another
approved location. Often cited potential benefits for agencies to
establish telecommuting programs include improved recruiting and retention
of employees, increased productivity, and a reduced need for office space.
Cited reasons for employees to participate in such programs include the
opportunity to reduce commuting time; lowered personal costs in areas such
as transportation, parking, food, and wardrobe; and improvement in the
quality of work- life and morale because they are able to balance work and
family demands. An MSPB survey conducted in 2000 found that 47 percent of
federal employees considered telecommuting important to them personally
and that 20 percent had it available to them. 12 12 U. S. Merit Systems
Protection Board, Issues of Merit (Washington, D. C.: December 2000),

p. 4.

Several managers and supervisors we interviewed, however, said that
telecommuting has not been shown to increase employee productivity, and
that it is often complicated to manage an employee who is working *out of
sight.* According to these agency officials, in many cases it is more
difficult to judge the quality of the employee*s work in a telecommuting

environment, while in other cases the quality of the work can decline if
the employee is not mature in using this flexibility. In addition, with
telecommuting, the office often loses some sense of teamwork and
continuity, and sometimes significant logistical obstacles must be
overcome. Further, telecommuting is not practical for all occupations or
situations. Yet, other agency managers and numerous union representatives
said that telecommuting can be an effective flexibility if

used appropriately. Union representatives at GSA in Philadelphia, for
example, said that agency managers should focus on employee productivity
and results rather than the need to simply observe the employee working.
These views mirror those found in our 1997 report

reviewing the use of telecommuting (i. e., flexiplace) in the federal
government. 13 During that review, agency officials and union
representatives we interviewed cited management resistance as the largest

barrier to implementing flexiplace programs. Agency officials had informed
us that they had had some success in overcoming management resistance by
training supervisors or by exposing them to telecommuting arrangements. At
the request of the Chairman, Subcommittee on Technology and Procurement
Policy, House Committee on Government Reform, we are undertaking an
assessment of federal telecommuting

policies and programs. Agency and Union Officials

Agency and union officials also cited monetary recruitment and retention
Identified Monetary

incentives as highly effective in managing their agencies* workforces.
Recruitment and Retention Agencies generally offer these types of monetary
incentives to employees

Incentives as Highly based on employee qualifications, special needs of
the agencies, or

difficulties in filling positions. These flexibilities include the
following. Effective Flexibilities

13 U. S. General Accounting Office, Federal Workforce: Agencies* Policies
and Views on Flexiplace in the Federal Government, GAO/ GGD- 97- 116
(Washington, D. C.: July 3, 1997).

Superior/ special qualifications appointments. Using this flexibility,
agencies can set base pay for newly appointed individuals above step 1 of
the various grade levels based on the superior qualifications or highly
specialized skills of the candidates or special needs of the agency.
Agency officials said that this flexibility was especially effective
because it allows agencies more control over entry- level salaries and
permits agencies to match the prior salaries of new hires coming from the
private sector. For example, IRS supervisors in Oakland told us that this
hiring flexibility had helped their office in matching salaries of
employees hired from the dotcom industry. GSA human resources officials in
San Francisco said that this appointment authority had greatly assisted
their office in hiring about 30 employees over the last 3 years. Officials
from the Mint*s headquarters information technology office said this pay
incentive had helped in hiring

highly skilled information security personnel at the GS- 13 and GS- 14
levels. 14 Recruitment bonuses. A recruitment bonus is a lump- sum payment
of up to

25 percent of basic pay that an agency may pay to an employee newly
appointed to a position that would otherwise be difficult to fill. In
return, the employee must sign an agreement to fulfill at least 6 months
of service with the agency. A senior human resources manager at one
department, for example, told us that her department had instituted over
1, 000 recruitment bonuses (averaging about $5,000 each) to attract new
hires. She said that the department typically hired new employees only at
the GS- 7 level and

thus relied on these recruitment bonuses to augment starting pay,
particularly for hard- to- fill scientific and technical positions.
Relocation bonuses. A relocation bonus is a lump- sum payment of up to 25
percent of basic pay that an agency may pay to a current employee who must
relocate to a position in a different commuting area that would otherwise
be difficult to fill. In return, the employee must sign a service

agreement with the agency. Another senior human resources manager, for
example, told us that his agency uses relocation bonuses to assist certain
employees who are required to move every 3 years to limit potential
conflicts of interest in their sensitive positions. He said that without
the

14 The General Schedule (GS) is the basic classification and compensation
system for whitecollar occupations in the federal government as
established by Title 5. Grades represent levels of difficulty,
responsibility, and qualifications that are sufficiently similar to
warrant their inclusion within one range of basic pay. Each grade includes
10 fixed rates of pay, called steps, through which employees advance.

relocation bonus, these employees would often lose money when they move,
resulting in significant morale problems.

Retention allowances. A retention allowance is a continuing (i. e.,
biweekly) payment of up to 25 percent of basic pay that an agency may pay
to help retain an employee. The agency must determine that (1) the
unusually high or unique qualifications of the employee or a special need
of the agency for the employee*s services makes it essential to retain the
employee and (2) the employee would be likely to leave the federal
government in the absence of a retention allowance. In addition, an agency
may offer retention allowances to a group or category of employees. 15
Agencies must annually review and certify the allowances, which allows

the agencies to terminate the incentive payments when no longer deemed
necessary. One senior human resources manager told us, for example, that
her department often uses retention allowances to help retain certain

specialized employees who are frequently approached by recruiters from
private industry and state governments. Agencies Can Use Retention

Although agencies generally use retention allowances to retain highly
Allowances to Build Employee

qualified employees, State also uses this flexibility to build employee
Competencies

competencies. In 1998, when planning for its information technology
requirements, State determined that it needed to address the difficulty of
attracting and keeping the highly qualified technical workforce necessary
to carry out its mission of providing support and coordinating the
activities of all U. S. government agencies abroad. As such, it
implemented a technology skills development program to attract and retain
employees with certain technological skills by granting them retention
allowances for obtaining job- related degrees and certifications. Under
the program, State also paid for training courses leading up to
certification but not the examinations to obtain the credentials. 16

According to State, it has granted over $4 million in total retention
allowances under this skills development program. The number of

15 Agencies generally have the authority to pay retention allowances up to
10 percent of basic pay to a group or category of employees. For group
retention allowances in excess of 10 percent (but not more than 25
percent), agencies need to obtain OPM approval.

16 A provision of the National Defense Authorization Act for 2002 provided
agencies with discretionary authority to use appropriated funds or funds
otherwise available to pay for employees* expenses to obtain professional
credentials, including the examinations to obtain such credentials (5 U.
S. C. 5757).

information technology employees with degrees or certifications increased
from 133 in 1999 to 583 in 2001. As part of its evaluation of the skills
development program, State surveyed the participants and supervisors
involved in the program. Approximately 61 percent of the employees who
participated in the program (335 out of 547) responded to the 2001 survey.
The 2001 survey showed that 80 percent of the responding participants

agreed that receiving the retention allowance played a substantial role in
their decision to work at the department, and 90 percent agreed that
receiving the allowance played a substantial role in their decision to
remain at the department.

Special Hiring Authorities Agency and union representatives frequently
noted that special hiring

Were Also Noted to be authorities available to federal agencies can also
be particularly effective in Particularly Effective

assisting agencies to appoint needed employees. These hiring authorities
Flexibilities

allow agencies to hire employees without going through the standard
federal hiring process, often resulting, according to managers, in shorter
hiring times, less onerous paperwork, and more flexibility in selecting
the job candidates who managers believe are most qualified. These special
hiring flexibilities include the following.

Student educational employment program. The student employment program
allows agencies to appoint graduate, undergraduate, vocational, technical,
associate degree, and professional degree seeking students who are
enrolled or have been accepted for enrollment in at least a part- time
schedule at an accredited institution. Some of these student employees are
eligible to receive tuition assistance and, upon completion of their
academic work, may be eligible for conversion to permanent jobs with the
agency. A senior human resources manager at one department said that the
student employment program allows agencies to develop professional
relationships with students while they are still in school, which makes it
easier to hire them when they are looking for permanent employment. GSA
officials said they had hired 110 students under this program in the last
3 years and noted that the agency has done well at retaining these
employees after they completed their academic work. Air Force officials
told us that given the agency*s downsizing environment of the past decade,
the Air Force had only recently reestablished its student employment
program but that the program has been successful in bringing in new
employees who, thus far, tend to stay with the agency.

Outstanding scholar program. The outstanding scholar program supplements
the standard competitive hiring process by allowing agencies to hire
outstanding college graduates 17 for certain entry- level occupations at
grades GS- 5 and GS- 7. Agency officials we interviewed said that because
agencies using the program are not required to rate and rank candidates
for these positions, the hiring process can be shortened. For example,
supervisors at GSA in Philadelphia told us that outstanding scholar hiring
authority is beneficial because it allows the agency to hire more quickly.
Although these and other agency officials strongly supported the use of
this

program, concerns have been raised by some about the degree of discretion
this program provides in allowing agencies to circumvent the standard
competitive hiring process. For example, in a January 2000 report, MSPB
noted that the hiring authority under the outstanding scholar program was
originally intended to be used as a short- term supplemental hiring tool.
18 The program was established in 1981 in response to a civil lawsuit
challenging the federal government*s use of a written test for entrylevel
professional and administrative jobs because of that test*s adverse impact
on African- Americans and Hispanics. 19 Although the program is aimed at
addressing underrepresentation of African Americans and Hispanics, the
program has never been restricted to those designated minority groups. In
its report, MSPB recommended that this hiring

authority be abolished and that merit- based hiring be restored to this
group of federal jobs. In its comments on a draft of our report, OPM
cautioned that although some agency officials we interviewed may have
viewed this program as providing broad authority to use noncompetitive
hiring procedures, agencies are to use this program only as a supplement
to competitive examining. OPM stressed that agencies must have an
established pattern of competitive selection into the covered occupations

before agencies can use the program. Veteran- related hiring authorities.
During our review, several agency and union officials also noted the
benefits of two veteran- focused hiring authorities. Veterans Readjustment
Appointment (VRA) authority allows

17 To be eligible, graduates must have maintained 3. 5 grade point
averages on a 4.0 scale or have graduated in the upper 10 percent of their
graduating classes or major university subdivisions, such as the School of
Business Administration.

18 U. S. Merit Systems Protection Board, Restoring Merit to Federal
Hiring: Why Two Special Hiring Programs Should Be Ended (Washington, D.
C.: January 2000). 19 Angel G. Luevano et al., v. Alan Campbell, Director,
Office of Personnel Management, et al., 93 F. R. D. 68 (1981).

agencies to noncompetitively appoint eligible veterans to otherwise
competitive positions at any grade level through GS- 11 or equivalent.
After the veteran completes 2 years of satisfactory service, the employing
agency must then noncompetitively convert this VRA appointee to permanent

status in the competitive federal service. Veterans Employment
Opportunities Act (VEOA) authority allows agencies to obtain a wider pool
of job applicants by permitting agencies to accept job applications from
eligible veterans for certain positions that would typically be open only
to individuals with competitive status. Veterans who submit job
applications

under this VEOA authority could then be selected for the positions under
standard competitive procedures. Supervisors of wage- grade employees at
GSA*s Philadelphia region said, for example, that using VRA authority had
been effective in assisting the region in quickly hiring highly qualified
veterans. GSA human resources officials in San Francisco told us that VEOA
had been effective in facilitating the hire of 24 veterans over the last
year.

Incentive Awards Were Also Agency and union officials also frequently
mentioned the effectiveness of Cited as Effective

granting incentive awards to employees. The intent of the incentive awards
Flexibilities program is to provide appropriate motivation and recognition
for excellence in job performance and contributions to an agency*s goals.
Incentive awards, which can be either monetary or nonmonetary, include the
following.

 Performance awards are lump- sum cash awards that reward employees for
fully successful or better job performance as defined by formal
performance appraisals. Awards can be up to 10 percent of an employee*s
basic pay, or up to 20 percent for exceptional job performance.

 Special act or service awards are lump- sum cash awards for specific
accomplishments that contribute to the efficiency, economy, or other
improvement of government operations. Agencies may grant up to $10,000
without external approval, up to $25,000 with OPM approval, and in excess
of $25,000 with Presidential approval. 20

20 The Department of Defense and IRS do not require OPM approval for
awards up to $25,000, but awards over $25,000 must be approved by the
President.

 Quality step increases (QSI) are permanent pay increases for outstanding
performance as shown on formal job performance appraisals. QSIs are
granted by providing employees with faster than normal progression through
the stepped rates of GS.

 Time- off awards are awards that grant employees time off from duty
without charging their annual leave or requiring that they forgo pay.
These awards allow employees to take time off from work when it is

most convenient for both the agencies and the employees.  Group
incentives include cash awards granted to employees based on

(1) increases in productivity or decreases in costs (i. e., gainsharing)
or (2) achievement of specified goals that enhance the success of the
organization*s mission (i. e., goalsharing). These incentives are designed
to foster teamwork and promote innovation and continuous improvement. 
Honorary and informal recognition awards are awards such as trophies,

plaques, certificates, and other tangible incentives. These awards give
supervisors maximum flexibility to be creative in how they recognize
employees. Agency and union officials provided us with numerous examples
of their use of incentive awards as effective flexibilities. For example:

 Officials at GSA said that GSA had used its awards program effectively
to recognize and motivate employees and that the agency had delegated
approval for authorizing awards to appropriate levels within the agency.
GSA*s fast- track awards program, for example, allows managers and
supervisors to log onto GSA*s intranet system and complete the
administrative work for the award within minutes.

 At VBA in Philadelphia, supervisors noted that offering movie tickets
and restaurant coupons to employees was a good way to show appreciation
for employees* performance and contributions.  U. S. Mint officials said
that they reward and recognize employees

through on- the- spot awards, time- off awards, and gainsharing. At the
Mint in San Francisco, managers mentioned that they have used employee
recognition day to boost morale by providing awards that are

of nominal monetary value but that are symbolically significant, such as
T- shi rt s.

 State*s Information Resource Management (IRM) Bureau officials said that
their quarterly awards process allows supervisors to recognize and reward
employees in a more timely fashion, rather than waiting until the annual
job performance appraisal process.

 IRS managers in Philadelphia mentioned that the agency provides data
conversion employees with incentive pay tied to quality and production,
noting that this award has helped to motivate these employees to
accomplish their job tasks more quickly and accurately.

Agency Officials and We identified five categories of additional
flexibilities that agency officials

Union Representatives and union representatives cited most often as being
potentially helpful in

managing their workforces if additional flexibilities were authorized for
Cited Need for

agencies. Specifically, these categories include Additional Human

 more flexible pay approaches, Capital Flexibilities

 greater flexibility to streamline and improve the federal hiring
process,  increased flexibility in addressing employees* poor job
performance,  additional workforce restructuring options, and  expanded
flexibility in acquiring and retaining temporary employees. These
suggestions by agency officials and union representatives provide a
starting point for executive branch decision makers and Congress to
consider as they seek to reform federal human capital policies and
practices. Although we have not analyzed the validity of the suggestions,
the categories are consistent with the authorities that we have
established at GAO and have been urging for other federal agencies. The
GAO Personnel Act of 1980 and our 2000 legislation included some of the
proposed additional flexibilities. The most prominent change in human
capital management that we implemented as a result of the GAO Personnel
Act of 1980 was a broadbanded 21 pay- for- performance system that bases
employee compensation primarily on the knowledge, skills, and performance
of individual employees. It provides managers flexibility to

21 Broadbanding is a personnel classification and pay system that involves
combining separate grade levels into broad pay bands.

assign and use employees in a manner that is more suitable to multitasking
and the full use of staff. Importantly, careful design and effective
implementation is crucial to obtaining the benefits of broadbanding in an
equitable and cost- effective manner. Also, as a result of the 1980 Act,
the Comptroller General has the authority to hire, on a noncompetitive
basis, up to 15 experts and consultants at any level, including senior
executives, with renewable terms up to 3 years each. GAO has used this
authority in selected cases and found it to be valuable in filling
critical time- sensitive

positions within the agency. Our October 2000 legislation gave us
additional tools to realign our workforce in light of mission needs and
overall budgetary constraints; to correct skills imbalances; and to reduce
high- grade, managerial, or supervisory positions without reducing the
overall number of employees. To address any or all of these three
situations, we were given authority to

offer voluntary early retirement and voluntary separation incentive
payments to our employees until December 31, 2003. This legislation also
allowed us to create a technical and scientific career track at a
compensation level comparable to senior career executives and to give
greater consideration to performance and employee skills and knowledge

in any reduction- in- force actions. Aspects of these authorities were
also included in the recently enacted Homeland Security Act of 2002, 22
which created the new Department of Homeland Security. In addition to
providing the President with additional authority to create new policies
for managing the workforce within the new department, the legislation
includes provisions that authorize agencies across the federal government
to use additional personnel flexibilities. For example, agencies will now
be permitted to offer buyouts to their employees without the requirement
to reduce their overall number of employees. This change will provide
agencies the opportunity to more easily restructure their workforces to
correct skills imbalances related to those employees whose jobs have
become obsolete or whose skills are no longer needed. The legislation also
permits agencies to use a more flexible approach in the rating and ranking
of job candidates during the hiring and staffing process. Using this
alternative approach can expand the number of

qualified candidates that a selecting official could choose from when
filling a position. In addition, under the legislation agencies will need
to

22 Pub. L. No. 107- 296, Nov. 25, 2002.

incorporate workforce planning into their strategic plans and appoint
*chief human capital officers* to oversee workforce management.

Additional analysis may be needed to ensure that any new personnel
authorities that are granted and implemented are consistent with a focus
on results, merit, and other important federal employment goals. As we
have noted in previous reports and testimonies, 23 comprehensive
legislative reform of the civil service will likely be necessary to
address the federal government*s human capital challenges; however, the
consensus necessary to make this a reality has yet to be achieved. Such
reform could provide a

broader range of federal agencies with a more standard set of human
capital tools and flexibilities to manage their workforces. Ultimately, in
undertaking any civil service reform, policymakers will likely want to
consider the potential needs of individual agencies along with the
governmentwide need to manage competition between agencies for skilled
employees.

Agency Officials Because human capital flexibilities entail greater
decentralization and

Believed That delegation of human capital authorities and fewer rules, the
protection of

employees* rights under these conditions can be challenging. The
Additional Flexibilities

managers and supervisors and human resources officials we interviewed
Could Coexist with

generally believed that additional human capital flexibilities could be
Protection of

authorized and implemented in their agencies while also ensuring
protection of employees* rights. Union representatives we interviewed, on

Employee Rights, but the other hand, had mixed views on the ability of
agencies to protect

Union Representatives employee rights with the increased discretion that
additional flexibilities

would give to agency managers. Some union representatives responded Gave
Mixed Views

positively when asked if agencies could give managers additional
flexibilities while protecting employees* rights. Several union officials,
however, said that managers could more easily abuse their authority when
implementing these additional flexibilities and that agency leaders often
do not take appropriate actions in dealing with abusive managers.

According to the agency and union officials we interviewed, one of the
most effective ways to ensure protection of employees* rights when
implementing these flexibilities is making certain that supervisors and
employees are fully aware of the available flexibilities, the procedures
to

23 See, for example, GAO- 01- 263 and GAO- 01- 357T.

use them, and the associated rights and responsibilities of both managers
and employees when using them. Clear guidelines for consistently applying
the flexibilities and straightforward explanations from managers

about how and why they made decisions are essential, according to some of
the individuals we interviewed. The consensus of agency officials, with
some union representatives agreeing, was that putting personnel authority
in the hands of agency managers through human capital flexibilities will
not affect employee protection as long as managers are held directly
accountable for their personnel decisions.

In our previous work, we recognized the importance of involving employee
unions when agencies propose major changes in the work environment that
may be of particular concern to the unions. 24 We found that obtaining
union cooperation and support through effective labor- management
relations can help achieve consensus on the planned changes, avoid
misunderstandings, and more expeditiously resolve problems that occur.
When agencies and employee unions maintained an ongoing working

relationship in an environment of trust and openness, agencies and unions
were able to work cooperatively even in the face of significant change.
For example, both IRS and the National Treasury Employees Union officials
credited the excellent working relationship they developed over the last
decade for helping the reorganization of IRS. One IRS official, for
example, stated that it is important to involve the union as a part of the
discussions about flexibilities because the union is sometimes more
effective than agency managers in communicating with employees.

Agency managers and supervisors also cited the importance of securing a
close working relationship with the agency*s human resources officials in
the protection of employee rights. Officials commented that human
resources officials are often good sources of information about
flexibilities and effective monitors of potential problems involving their
use. According to several supervisors we interviewed, this assistance and
monitoring by human resources officials, along with managers* and union
representatives* efforts to keep each other honest, help to ensure that
employee protection can coexist with the use of human capital
flexibilities.

24 U. S. General Accounting Office, Human Capital: Practices That
Empowered and Involved Employees, GAO- 01- 1070 (Washington, D. C.: Sept.
24, 2001).

Key Practices Can Based on our interviews with human resources directors
across the federal

Assist Agencies in government and our related human capital work, we
identified six key

practices that agencies can implement for effectively using human capital
Effectively Using

flexibilities. These practices are (1) planning strategically and making
Flexibilities

targeted investments, (2) ensuring stakeholder input in developing
policies and procedures, (3) educating managers and employees on the
availability and use of flexibilities, (4) streamlining and improving
administrative processes, (5) building transparency and accountability
into the system, and (6) changing the organizational culture. 25 We
confirmed the importance of these practices in our discussions with
managers and supervisors, human resources officials, and local union
representatives at the seven agencies we selected for more detailed
review. We also identified relevant examples of the use of these key
practices from the seven agencies. The following is a more detailed
discussion of these practices

along with examples we identified. Planning Strategically and

With strong commitment on the part of their leadership, federal agencies
Making Targeted need to ensure that the use of human capital flexibilities
is part of an

Investments overall human capital strategy clearly linked to the program
goals of the

organization. Agencies need to plan for how they will use and fund these
authorities, what results they expect to achieve, and what methods they
will use to evaluate actual results. Our review found that a significant

reason why managers and supervisors had not made greater and more
effective use of existing human capital flexibilities was agencies* weak
strategic human capital planning and inadequate funding for using these
flexibilities given competing priorities. Such a strategic focus would
allow for answering critical questions such as whether current staff and
resources are sufficient; whether they are being allocated in a manner
best suited to promote mission accomplishment; and, ultimately, whether
agencies and Congress may wish to consider a variety of targeted
investments or new human capital flexibilities in the future. The
following

are elements and examples of planning strategically and making targeted
investments from the seven agencies we reviewed.

25 U. S. General Accounting Office, Managing for Results: Building on the
Momentum for Strategic Human Capital Reform, GAO- 02- 528T (Washington, D.
C.: Mar. 18, 2002).

 Obtain agency leadership commitment. Top leadership commitment is
crucial to instilling a common vision across the organization and creating
an environment that is receptive to innovation. In earlier reports and
testimonies, we observed that top leadership plays a critical role in
creating and sustaining high- performance organizations. 26 We also
highlight the importance of top leadership commitment in our

recently issued model of strategic human capital management, in which we
note that political leaders and senior career executives demonstrate this
commitment by personally developing and directing reform, driving
continual improvement, and characterizing the agency*s mission in reform
initiatives. 27 At IRS, for example, Commissioner Rossotti*s efforts
demonstrated a clear case of leadership*s commitment to change.

As mandated by Congress in the IRS Restructuring and Reform Act, the
Commissioner articulated a new mission for the agency, together with
support for strategic goals that balance customer service and compliance
with tax laws. The Commissioner led a modernization

effort that touched virtually every aspect of IRS, including
implementation of IRS*s newly authorized personnel system and the
additional human capital flexibilities that accompanied it.

 Determine agency workforce needs using fact- based analysis. Federal
agencies often have not gathered and analyzed the data required to
effectively assess how well their human capital approaches have supported
results. High- performing organizations identify their current and future
human capital needs, including the appropriate number of employees; the
key competencies for mission accomplishment; and the appropriate
deployment of staff across the organization. For example, in 1998 the Air
Force Materiel Command (AFMC), the largest employer of civilians in the
Air Force, began a two- phased workforce study designed to tailor its
human capital to meet future business needs. AFMC*s planning efforts, as
documented in its April 2000 study called

Sustaining the Sword, involved an assessment of the current and projected
2005 workforce by workforce mix, skills, skill levels, and

26 See the following GAO products: GAO- 01- 1070; Managing for Results:
Federal Managers* Views Show Need for Ensuring Top Leadership Skills, GAO-
01- 127 (Washington, D. C.: Oct. 20, 2000); Management Reform: Using the
Results Act and Quality Management to Improve Federal Performance, GAO/ T-
GGD- 99- 151 (Washington, D. C.: July 29, 1999); and

Management Reform: Elements of Successful Improvement Initiatives, GAO/ T-
GGD- 00- 26 (Washington, D. C.: Oct. 15, 1999). 27 GAO- 02- 373SP.

demographics and then a more detailed position- level analysis of
workforce data from AFMC locations. AFMC reported that these data and the
results of its workforce shaping activities led to a more informed
understanding of workforce gaps, for which corrective

strategies could be then developed.  Develop strategies that employ
appropriate flexibilities to meet

workforce needs. After identifying current and future workforce needs,
agencies ought to develop effective strategies that fill the gaps. In
developing these strategies, agencies should assess which human capital
flexibilities might work best given current and future needs. For example,
in 2000 the Mint created a *human resources flexibilities team* to assess
the agency*s current and future use of existing human capital
flexibilities. This initial assessment, as outlined in a December 2000
report, revealed that the Mint had pursued a number of key flexibilities
but had not done so uniformly across its organizational, occupational, and
grade- level structures. In its report, the Mint assessed over 80

disparate human capital flexibilities and developed specific plans to use
each of the flexibilities that had not been used or that required
immediate attention for full use.

 Make appropriate funding available. After developing strategies,
agencies need to assess the associated costs of using any human capital
flexibilities as part of these strategies. Such assessments will allow
agencies to better plan for the use of these flexibilities and to ensure
that appropriate funding is available when needed. Air Force, for example,
developed a comprehensive, multiyear funding plan to implement its
Civilian Personnel Management Improvement Strategy (CPMIS), which
comprises 28 separate human capital initiatives grouped into the areas of
accession planning, workforce development, retention/ separation
management, and support activities. Under accession planning, for
instance, one initiative calls for the Air Force to expand its use of the
*3Rs** recruitment bonuses, relocation bonuses, and retention allowances*
to sustain necessary skills in the civilian workforce. Beginning in fiscal
year 2004, the Air Force projects offering approximately 1,300 recruitment
bonuses annually at an average cost of

$11, 250, approximately 650 relocation bonuses at an average cost of
$10,000, and approximately 650 retention allowances at an average cost of
$9,000. (See table 2.)

Table 2: Air Force CPMIS Funding Strategy for 3Rs (Fiscal Years 2004
through 2009) Proposed funding by fiscal year (dollars in millions) Human
capital flexibility 2004 2005 2006 2007 2008 2009

Recruitment bonuses (1, 300) $14.6 $15.5 $16. 4 $17.3 $18. 3 $19.3
Relocation bonuses (650) 6.5 6. 7 6.8 7. 0 7. 2 7. 4 Retention allowances
(650) 5.9 6. 0 6.2 $6.4 6. 6 6.8

Source: Air Force.

Ensuring Stakeholder Input Agency leaders, managers, employees, and
employee unions need to work

in Developing Policies and together to identify and effectively implement
human capital flexibilities. Procedures

Engaging all of the stakeholders in developing policies and procedures for
the use of flexibilities helps in reaching agreement on the need for
change, the direction and scope that change will take, and how progress
will be assessed. Stakeholder input should also be used to ensure that the
policies surrounding the use of flexibilities are clear and the procedures
to implement them are uncomplicated. The following are elements and
examples from our seven selected agencies on how they ensured stakeholder
input in developing human capital flexibility policies and procedures. 
Engage the human capital office. Because flexibilities influence the

entire human capital system, human capital professionals are needed to
supply the energy and expertise in helping to develop policies and
procedures on the use of flexibilities. As noted in our model of strategic
human capital management, this assistance requires the expansion of the
role of human capital professionals from largely

paperwork processors to functioning as advisors to and partners with
senior leadership and managers. By transforming from focusing largely on
transactions to more on total customer service, the role of the human
capital office in facilitating the use of flexibilities will become

increasingly important. GSA*s Philadelphia regional office, for example,
established a Human Resources Council, which is composed of the human
resources director and representatives of various GSA offices, to discuss
human capital policies and practices in the region, such as alternative
work arrangements and incentive awards. In another

example, State*s IRM Bureau directly involved human capital professionals
in its working group that crafted its skills development program to
provide retention allowances (ranging from 5 to 15 percent)

to certain information technology workers who obtain job- related degrees
and certifications.

 Engage agency managers and supervisors. Soliciting the input of managers
and supervisors on how best to implement human capital flexibilities is a
key component for their successful use. Because managers and supervisors
are virtually certain to be negatively affected by unclear policies and
procedures, their perspectives on how to make

strategic use of flexibilities, while avoiding potential problems caused
by poor implementation, are essential. To address the potential problems
of limited input, for example, 160 frontline managers from GSA*s central
and regional offices convened in four sessions in March 2001 to exchange
information about effective workforce- related practices using many of the
flexibilities already available to the agency. This effort resulted in a
catalog of *best practices* that their offices had

implemented in the areas of recruiting and orienting employees, engaging
existing employees, and developing leaders.  Involve employees and
unions. As with any significant change in the workplace, involving
employees and unions in decisions to use human

capital flexibilities increases employees* understanding and acceptance of
the objectives for implementing change, helps to avoid misunderstandings,
and can assist in more expeditiously resolving problems that might occur.
28 While frontline employees can help ensure a more operationally oriented
perspective on the use of flexibilities,

obtaining union cooperation and support through effective labormanagement
relations can help achieve consensus on the changes accompanying their
use. For example, the Mint and VBA made changes to employee work schedules
based on input from employees in open forums. At a *town hall* meeting at
the Mint*s San Francisco coinmaking plant, employees (with assistance from
the local union) were able to vote on various options for implementing an
alternative work schedule for the facility. At a *listening post* session
at VBA*s regional office in Philadelphia, employees offered input to
change the operating hours of the facility*s phone operations.

 Use input to establish clear, documented, and transparent policies and
procedures. After obtaining sufficient input from key players, agencies
need to develop and implement human capital

28 GAO- 01- 1070.

flexibilities using clear, documented, and transparent policies and
procedures. This practice is essential to ensuring that they are used
fairly and, at the same time, are not encumbered with so many
administrative burdens that they lose their value as flexibilities.

Agencies can take various steps to ensure that policies and procedures are
clear and uncomplicated. For example, the Mint*s Office of Chief Financial
Officer hired a writer- editor to assist the agency in writing personnel-
related policies and procedures in *plain English.* As an example of
developing uncomplicated policies and procedures, GSA officials provided
us with a merit promotion plan that had been reduced from 75 to 5 pages.

Educating Managers and Agencies need to ensure that they have an effective
campaign not only to

Employees on Availability inform agency managers and employees of their
personnel authorities, but

and Use of Flexibilities also to explain the situations where the use of
those authorities is appropriate. Our work at the seven agencies showed
that the lack of

awareness and knowledge of human capital flexibilities was one of the most
significant reasons why federal managers and supervisors have not made
better use of these flexibilities. In some cases, senior managers might
not know that such flexibilities were already available to their agencies.
In other cases, agency leaders or parent departments might place
restrictions on the use of a flexibility* either strategically or
haphazardly* and then not communicate the source and reasons for such
restrictions to line managers and supervisors within the agency. Educating
managers and employees goes a long way in ensuring effective use of these
flexibilities across the federal government. The following are elements
and examples of how agencies educated managers and employees on the
availability and

use of human capital flexibilities.  Train human capital staff.
Traditionally, what has been called the

personnel or human resources function has often been viewed as strictly a
support function involved in administering personnel processes and
ensuring compliance with rules and regulations. As human capital
professionals take a more consultative approach to their jobs, they will
need not only the knowledge of and expertise in the full range of human
capital flexibilities available but also skills on communicating this
information to their clients in the agencies they serve. For example, GSA
held a conference in September 2000 for its human resources staff members
to increase their knowledge of emerging human capital issues and to better
their skills in responding to the needs of clients throughout the agency.
According to a senior

human resources manager at GSA, the conference included a presentation and
discussion of the human capital flexibilities available for use within the
agency.

 Educate agency managers and supervisors on existence and use of
flexibilities. Ultimately the flexibilities within the personnel system
are only beneficial if the managers and supervisors who would carry them
out are actually aware of their existence and of the best manner in which
they could be used. Educating managers and supervisors is key to ensuring
that agencies use all of the tools and flexibilities needed to manage
their workforces to accomplish agency missions and achieve goals. For
example, AFMC developed and distributed a Supervisor*s Guide to Work Force
Planning to educate agency managers and supervisors on numerous
flexibilities available to attract and retain

quality employees. GSA*s Philadelphia office has educated its supervisors
on human capital flexibilities with its *Human Resources Solutions Series*
training, which includes topics such as employee leave and work schedules,
options for dealing with performance and conduct problems, and balancing
managerial flexibility and accountability under merit system principles.

 Inform employees of procedures and rights. In previous work, we have
highlighted the importance of informing employees of personnelrelated
policies and procedures and their rights under them. 29 This communication
helps in minimizing employee confusion and apprehension and ensuring that
flexibilities are implemented fairly within and across the organization.
Agencies can use a variety of methods to communicate this information. For
example, GSA*s human

resources manager in Philadelphia said that most updates concerning
employee rights and procedures are communicated via GSA*s intranet Web
site. The office also distributes an employee newsletter with

information about related personnel policies and procedures. 29 See, for
example, the following: U. S. General Accounting Office, Whistleblower
Protection: VA Did Little Until Recently to Inform Employees About Their
Rights,

GAO/ GGD- 00- 70 (Washington, D. C.: Apr. 14, 2000), and D. C. Courts:
Implementation of Personnel Policies Requires Further Attention From the
Courts* Leadership, GAO/ GGD00- 75BR (Washington, D. C.: Apr. 12, 2000).

Streamlining and Improving Agencies also need to streamline and improve
administrative processes for

Administrative Processes using flexibilities and review self- imposed
constraints that may be

excessively process oriented. Indeed, our interviews with agency managers
and supervisors revealed that they viewed burdensome and timeconsuming
approval processes as a significant reason why they did not make better
use of available human capital flexibilities. Although sufficient controls
are important to ensure consistency and fairness in using flexibilities,
agency officials should look for instances in which processes can be
reengineered. This reengineering of processes for using flexibilities can
assist the agencies in increasing efficiencies, decreasing costs, or both.
In this effort, agency managers need to bear in mind that they should
first determine requirements and design processes before developing any
information systems to support the new processes. The following are
elements and examples of how the agencies streamlined and improved
administrative processes.

 Ascertain the source of existing requirements. As we have previously
reported, some of the barriers to effective strategic human capital
management in the federal government do not stem from law or regulation
but are self- imposed by agencies. 30 The source of these barriers can
sometimes be a lack of understanding of the prerogatives that agencies
have. For example, the head of State*s office responsible for overseas
building operations asked OMB in May 2001 for a series of increased
flexibilities to accomplish various personnel management goals. In its
response, OMB noted that the department already had the authority to
implement many of these requested changes. In another example, personnel
policy at the Mint had required that job vacancy announcements for certain
positions be publicly posted for at least 30 calendar days. OPM, however,
generally allows agencies the flexibility to post such announcements for
as few as 5 business days. 31 Mint officials told us that the Mint*s
parent agency, the Department of the Treasury, had initially established
this 30- day posting requirement and that the Mint*s original policy had
been drafted to concur with

30 U. S. General Accounting Office, Transforming the Civil Service:
Building the Workforce of the Future* Results of a GAO- Sponsored
Symposium, GAO/ GGD- 96- 35 (Washington, D. C.: Dec. 20, 1995), and GPRA:
Managerial Accountability and Flexibility Did Not Work As Intended, GAO/
GGD- 97- 36 (Washington, D. C.: Apr. 10, 1997). 31 OPM allows agencies to
post job announcements for even shorter periods than 5 business days in
situations when inordinately large numbers of applications from well-
qualified candidates are expected.

Treasury*s. After Mint officials realized that this 30- day requirement
flowed from its parent department, the Mint was able to work to modify the
policy to require a minimum of only 5 business days for posting these job
announcements.

 Reevaluate administrative approval processes for greater efficiency. In
our interviews at the selected agencies, some managers and supervisors
complained about the lack of time to initiate and

implement the justification and approval processes that agencies have in
place to use existing flexibilities. If senior managers within the agency
want supervisors to use these flexibilities, supervisors must view the
required initiation and approval processes worth their time compared to
the expected benefit to be gained in using the flexibility. In simplifying
processes to provide for greater efficiencies and improved quality and
responsiveness, agencies have often turned to automation of

paper- based personnel processes and procedures. For example, managers and
supervisors at GSA*s Philadelphia office cited the agency*s recently
automated processes for granting employees on- the- spot cash awards
(ranging from $50 to $2, 000). Previously, agency supervisors were
required to complete lengthy justifications and send these forms to the
personnel office for review. According to the human resources manager, the
perceived burdens of the previous administrative process led to very few
awards being granted. Now, according to GSA managers and supervisors, by
accessing GSA*s intranet Web site, an agency supervisor can complete the
award initiation process within minutes

and on the next business day receive a certificate to present to the
employee that shows what the award is for and when the employee can expect
the money in his or her paycheck.

 Replicate proven successes of others. When developing processes and
procedures for using flexibilities, agencies can potentially learn
valuable lessons from other agency components or from other organizations
altogether. These lessons learned could be instructive in developing ways
to best implement such flexibilities along with determining which
flexibilities are most effective. For example, officials at VBA*s Oakland
office informed the agency*s Philadelphia office of the success they had
in using the student cooperative program to recruit needed staff members
for the office. This special hiring authority, called the Student Career
Experience Program, allows agencies to appoint students who are enrolled
or have been accepted for enrollment at least part- time at accredited
institutions. After completing

their academic requirements, these employees can then be converted
noncompetitively to term or permanent positions within 120 days.

Building Transparency and To ensure effective use of human capital
flexibilities, agencies need to

Accountability into the delegate authority to use these flexibilities to
appropriate levels within the

System agency, and then agency managers and supervisors need to be held
accountable* both for achieving results and for treating employees fairly.
Agency managers and supervisors are more likely to support changes when

they have the necessary authority and flexibility* along with commensurate
accountability and incentives* to advance the agency*s goals and improve
performance. Indeed, devolving decision- making authority to program
managers in combination with holding them

accountable for results is one of the most powerful incentives for
encouraging results- oriented management. However, achieving a proper
balance between managerial flexibility and adequate controls to ensure
consistency and accountability can be a challenging endeavor. Moreover,
agencies that expect their managers and employees to take greater

responsibility and be held accountable for results must ensure that the
managers and employees have the training and tools they need to fulfill
these expectations. The following are elements and examples from the
agencies we reviewed of how they built transparency and accountability
into their human capital systems.

 Delegate authority to use flexibilities to appropriate levels within the
agency. In a recent report, we found that only about onethird of agency
managers we surveyed from 28 agencies believed that they had, to a great
or very great extent, the authority they needed to help accomplish agency
goals. 32 Providing managers and supervisors with such authority gives
those who know the most about an agency*s programs the power to make those
programs work. This delegation of

authority is equally important when implementing human capital
flexibilities. For example, the Department of the Treasury delegated
authority to IRS and its other bureaus to establish their own policies on
superior qualifications appointments (SQA), a flexibility that allows

agencies to hire individuals at advanced rates of pay based on the
individuals* superior qualifications or special needs of the agencies. To
32 U. S. General Accounting Office, Managing for Results: Federal
Managers* Views on Key

Management Issues Vary Widely Across Agencies, GAO- 01- 592 (Washington,
D. C.: May 25, 2001).

expedite timely approval in hiring situations, IRS in turn redelegated
this approval authority for SQAs to the human resources officers within
each of the agency*s business units. In another example, VBA in

Philadelphia delegated authority to immediate supervisors to approve on-
the- spot monetary awards for their employees without review by senior
managers. VBA supervisors said that under this delegated authority they
simply complete a short form and present it to the employee, who can then
proceed to the on- site credit union and receive cash, all within 1 hour.

 Hold managers and supervisors directly accountable. Agencies must
develop clear and transparent guidelines for using flexibilities and then
hold managers and supervisors accountable for their fair and effective
use. Managers need to be held accountable for their contributions to
results and recognized and rewarded for those contributions. Internal and
external parties, such as agency human resources offices, offices of
inspectors general, and OPM, can help to ensure transparency in the use of
flexibilities through appropriate

review and oversight. For example, according to the senior human resources
official at GSA*s Philadelphia regional office, the human resources office
monitors supervisors* granting of employee awards to ensure that
supervisors are effectively using this flexibility. This list of

award amounts and frequencies (without personal identifiers) can be
provided to supervisors within the region so that they know how their use
of such flexibilities compares with that of other regional supervisors.

 Apply policies and procedures consistently. While recognizing
differences in each individual*s job performance and competencies,
supervisors need to make concerted efforts to apply policies and
procedures for using flexibilities consistently. Our review at the seven
agencies showed that a significant reason why supervisors have not made
greater use of flexibilities is supervisors* fears that some employees
will view the use of various flexibilities as somehow unfair. The
consistent application of policies and procedures helps to lessen

employee fears because decision- making criteria are well defined,
documented, transparent, and applied the same way in similar situations.
For example, after some concerns expressed by newly hired IRS employees
about possible inconsistencies, the agency developed guidelines for its
managers to use in determining if a job applicant

qualifies for a recruitment bonus. According to IRS officials, these

guidelines helped to ensure consistent application of recruitment bonuses
based on the specific backgrounds of new employees.

Changing the Organizational Organizational culture represents the
underlying assumptions, beliefs,

Culture values, attitudes, and expectations generally shared by an
organization*s

members. Because an organization*s beliefs and values affect the behavior
of its members, changing the organizational culture related to outdated
personnel- related approaches is crucial to effectively using human
capital

flexibilities. Changing this culture is important particularly in areas
related to ensuring the involvement of senior human capital managers in
key decision- making processes and decreasing managers* and supervisors*
resistance to change. Agencies also need to address managers* and
supervisors* concerns that employees will view the use of flexibilities as
inherently unfair, and the belief that all employees must be treated
essentially the same regardless of job performance and agency needs. By
addressing such organizational culture issues, agencies can better assist
managers and staffs in developing creative ways to employ tools and
flexibilities to address human capital challenges. The following are
elements and examples from the seven agencies we reviewed of practices
they implemented to change their organizational cultures.

 Ensure involvement of senior human capital managers in key decision-
making processes. A fundamental reorientation is required to ensure that
human capital leaders take a *seat at the table* as full members of the
top management team rather than isolating them to provide after- the- fact
support. By expanding the strategic role of human capital officials beyond
providing traditional personnel administration services, agencies are in a
better position to integrate human capital considerations when identifying
the mission, strategic goals, and core values of the organization as well
as when designing and implementing policies and procedures. The senior
human capital manager at IRS, for

instance, has been heavily involved in the agency*s recent restructuring
initiative as well as its overall strategic direction. Recognizing the
importance of this strategic role, he also recently devolved the agency*s
human resources office into three units; two are strategically focused

and the third is transaction focused.  Encourage greater acceptance of
prudent risk taking and organizational change. Managers and supervisors
need to have an appropriate attitude toward risk taking and proceed with
new operations after carefully analyzing the risks involved and
determining

how they may be minimized or mitigated. Managers and supervisors will at
times resist making changes because they would have to work in new and
unfamiliar ways. Although managers and supervisors can initially be
uncomfortable exercising newly delegated authorities, they will often gain
confidence as they better understand their importance and become more
experienced in exercising them. For example, IRS*s regional office in
Oakland hired a consultant to conduct training for managers that promotes
creative thinking, empowerment for decision making, and prudent risk
taking. The training course is an ongoing process with managers returning
each year to ensure their continued comfort with and use of principles
covered in the training. In another example, according to a senior human
resources official in State, managers in the department*s Office of
Logistics Management were

initially hesitant to allow the use of alternative work schedules for
employees in that office but finally accepted use of the flexibility when
they realized that it would not drastically affect the office*s
operations.

 Recognize differences in individual job performance and competencies. In
previous work looking at the practices of private sector organizations
regularly cited as leaders in the area of human capital, common principles
of human capital management we identified include the importance of
recognizing differences in employees* job

performance and competencies. 33 Rather than follow the federal
government*s traditional approach of compensating federal employees
strictly based on their status at a particular grade level, agencies
should look at using performance management systems, including pay and
other meaningful incentives, to more clearly recognize individual job
performance as well as employee competencies. In an example of recognizing
differences in individual job performance, GSA*s Public Buildings Service
(PBS) created a performance measurement and incentive awards system for
its regional offices and its employees in its *Linking Budget to
Performance* initiative. Under this initiative, each of PBS*s 11 regional
offices strives to achieve preestablished goals for nine standard
performance measures. On the basis of each region*s performance, monetary
incentives can be provided based on employees* contribution to the
region*s accomplishments. Furthermore, an example of recognizing
differences in employee competencies is demonstrated with State*s use of
retention allowances for employees

33 U. S. General Accounting Office, Human Capital: Key Principles From
Nine Private Sector Organizations, GAO/ GGD- 00- 28 (Washington, D. C.:
Jan. 31, 2000).

who obtain job- related degrees and certifications in the information
technology field.

Conclusions The insufficient and ineffective use of flexibilities can
significantly hinder the ability of federal agencies to recruit, hire,
retain, and manage their

human capital. To deal with their human capital challenges, it is
important for agencies to assess and determine which human capital
flexibilities are the most appropriate and effective for managing their
workforces. On the basis of our review at seven selected agencies, the
most effective flexibilities cited were work- life policies and programs,
monetary recruitment and retention incentives, special hiring authorities,
and employee incentive awards. Our review at the seven selected agencies
also found several categories of additional flexibilities that agency and
union officials cited as being potentially helpful in managing their
workforces. If such additional flexibilities are desired, agencies should
develop business cases to justify the need for the authority to implement
these additional flexibilities. Although comprehensive civil service
reform will likely be necessary to address the federal government*s human
capital challenges, agencies need not wait in seeking additional
flexibilities where clear business cases have been established.

The appropriate and effective use of flexibilities is essential to
ensuring that employees* rights are protected, agencies adhere to merit
system principles, and employees are shielded from prohibited personnel

practices. To ensure the most effective use of human capital
flexibilities, it is important that agencies (1) plan strategically and
make targeted investments, (2) ensure stakeholder input in developing
policies and

procedures, (3) educate managers and employees on the availability and use
of flexibilities, (4) streamline and improve administrative processes, (5)
build transparency and accountability into their systems, and (6) change
their organizational cultures. By more effectively using flexibilities,
agencies would be in a better position to manage their workforces, assure
accountability, and transform their cultures to address current and

emerging demands. Agency Comments and

We provided a draft of this report on September 4, 2002, to the Director
of Our Evaluation

OPM, the Secretary of Defense, the Commissioner of IRS, the Director of
the U. S. Mint, the Secretary of Veterans Affairs, the Administrator of
GSA, the Under Secretary for International Trade, and the Secretary of
State.

OPM, Defense, IRS, the Mint, VA, GSA, and ITA provided comments on the
draft report. These agencies either generally agreed with the information
presented or did not express an overall opinion about the report. In some
cases these agencies provided written technical comments to clarify
specific points regarding the information presented. Where appropriate, we
have made changes to this report to reflect these technical comments.
State did not provide comments on this report.

The following summarizes significant comments provided by the seven
agencies.

 In her written comments (see app. II), the OPM Director noted that OPM
was pleased that our report acknowledges the need for greater personnel
flexibilities in cases where existing law constrains OPM in providing
policies and programs to assist agencies in accomplishing their missions.
In technical comments, OPM raised concerns, however, about our position
that individual agencies could be authorized additional legislative
flexibilities if they develop sound business cases

that such flexibilities are needed. OPM stated that its obligation is to
review and analyze all agencies* requests to use additional flexibilities
or create additional flexibilities to ensure that they promote the
efficiency and effectiveness of the federal government and do not create
an unfair competitive advantage for selected agencies. In this regard, OPM
commented that it supports the need for a standardized approach to
governmentwide flexibilities. As we noted in this report and in previous

reports and testimonies, comprehensive legislative reform of the civil
service will likely be necessary to address the federal government*s human
capital challenges. We believe, however, that agencies need not

wait in seeking additional flexibilities where clear business cases have
been established for such flexibilities. It is possible that civil service
reform could provide a broader range of agencies with a more standard set
of human capital tools and flexibilities to manage their workforces.
Ultimately, in addressing civil service reform, policymakers will likely
want to consider the potential needs of individual agencies along with the
governmentwide need to manage competition between agencies for

skilled employees. We added a discussion of this issue to the report in
the section dealing with agency and union officials* views on authorizing
additional flexibilities.

 In its technical comments, OPM also emphasized that the outstanding
scholar hiring program can only be used as a supplement to competitive
examining and should not be viewed as an *alternative* hiring authority.

OPM expressed concern that we not recommend that agencies use this program
for a purpose other than that for which it was intended. We noted in the
draft report, however, that this program was intended to

serve as a supplemental hiring tool. Our report states that many agency
officials we interviewed viewed this program as effective because the
program allows the agency to hire more quickly given that the agency does
not have to rank and rate candidates as usually required under the
standard competitive hiring process. Although OPM does not include the
outstanding scholar program as an alternative hiring or staffing option in
its Flexibilities Handbook, many of the agency officials we interviewed
viewed this program as an effective flexibility, and the program meets the
definition of human capital flexibility that we used in this report. Our
report, however, does not recommend that agencies use this program to
circumvent the standard examining process. As with many of the
flexibilities available to agencies, the outstanding scholar

program could be used in inappropriate or inefficient ways. As we note
under key factors for effective use of flexibilities, agencies must build
transparency and accountability into their human capital systems to ensure
that managers and supervisors are held accountable for the fair and
effective use of these flexibilities. In response to OPM*s concerns on
this issue, we added additional language to the report to emphasize that
this program is to be used as a supplement to competitive hiring and to
note OPM*s statement that agencies must have an established pattern of
competitive examining into the covered jobs before agencies can use this
program.

 Defense*s comments, provided by E- mail through its Office of Inspector
General, did not express an overall opinion about the report. However, the
comments noted that it appeared we were asserting in the report

that telecommuting had been clearly shown to increase employee
productivity. We noted in the draft report that our discussions with
agency and union officials about telecommuting brought about strongly
mixed views, including its effect on employee productivity and the
challenges of managing such a program. Still, we changed the text to
clarify that some managers and supervisors told us that telecommuting has
not been shown to increase employee productivity and that telecommuting is
not practical for all occupations or situations.

 In written comments (see app. III), the IRS Commissioner stated that he
generally agreed with the list of available human capital flexibilities
that agency and union officials cited as most helpful for managing their
workforces. Nonetheless, he said that these flexibilities may not be as

important in the long run as some of the more deep- rooted changes to
human capital management policies and practices that agencies like IRS
have undertaken recently to improve their workforces* performance and
accountability. He noted that IRS*s recently acquired statutory
flexibilities, such as a broadbanding pay system and an expedited and
flexible hiring process, were instrumental to achieving the agency*s
transformation to a modern, business- like organization. He stressed the

importance of providing additional flexibilities to federal agencies so
that they can manage their workforces in a manner comparable to the
private sector.

 In written comments (see app. IV), the Mint*s Director stated that the
report provides an objective, balanced review and assessment of the issues
surrounding the implementation of human capital flexibilities. She
commented that the report would serve as a useful tool that

policymakers could use to guide federal agencies seeking to employ greater
flexibilities to manage their workforces.  VA provided comments by E-
mail through its GAO liaison. VA agreed

with the information presented and had no additional comments on the draft
report.

 GSA*s comments, provided by E- mail from its Office of Human Resources,
were largely clarifying and technical in nature and did not express an
overall opinion on the report. In a point similar to that made by Defense,
GSA commented that our report should more fully draw

attention to the drawbacks of telecommuting in our discussion of worklife
programs. Again, we added clarifying text indicating that some managers
and supervisors told us that telecommuting has not been shown to increase
employee productivity and that telecommuting is not

practical for all occupations or situations.  In written comments from
ITA (see app. V), the Under Secretary for

International Trade said that the report thoroughly and comprehensively
addresses the critical issue of the programs needed to manage the federal
workforce. In addition, he emphasized the need for the additional
flexibilities mentioned in the report.

We are sending copies of this report to the Chairman and Ranking Minority
Member, House Committee on Government Reform, and its Subcommittee on
Civil Service, Census and Agency Organization, and other interested

congressional parties. We will also send copies to the Director of OPM,
the Secretary of Veterans Affairs, the Secretary of State, the Secretary
of Commerce, the Secretary of the Air Force, the Secretary of the
Treasury, and the Administrator of GSA. We also will make copies available
to others upon request. In addition, the report will be 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 Edward
Stephenson on (202) 512- 6806. Key contributors to this report are listed
in appendix VI. J. Christopher Mihm

Director, Strategic Issues

Appendi Appendi xes x I

Objectives, Scope, and Methodology The objectives for this study were to
provide information on  agency officials* and union representatives*
views on (1) the most

effective flexibilities for managing their workforces, (2) additional
flexibilities that would be the most helpful in managing their workforces,
and (3) whether employee rights could be protected if additional
flexibilities were authorized and implemented within agencies and

 key practices that agencies should implement for effective use of human
capital flexibilities, along with specific examples of such practices from
selected agencies.

To respond to the objectives of this report, we conducted this work in two
phases and gathered information from a variety of sources using several
different data collection techniques. During phase one of this review,

which was completed from May to December 2001, we first interviewed
representatives from OPM, the federal government*s human resources agency;
MSPB, a federal agency that hears and decides civil service cases, reviews
OPM regulations, and conducts studies of the federal government*s merit
systems; and NAPA, an independent, nonpartisan, nonprofit,

congressionally chartered organization that assists federal, state, and
local governments in improving their performance. We interviewed
representatives of these three organizations to gather background

information on the federal government*s experiences with and use of human
capital flexibilities and to obtain suggestions about which federal
agencies we should consider for a more detailed review during phase two of
our study. We also reviewed numerous reports issued by these organizations
on governmentwide human capital issues and the use of various human
capital flexibilities in federal agencies. In addition, we reviewed
previous GAO reports on a broad range of human capital issues.

During phase one of this study, we also gathered information for our two
objectives by conducting semistructured interviews with (1) the human
resources directors of the 24 largest federal departments and agencies and
(2) representatives from 4 national organizations representing federal
employees and managers* National Treasury Employees Union, American
Federation of Government Employees, National Association of Government
Employees, and Senior Executives Association. To produce a general summary
of the human resources directors* views, we first reviewed their responses
to the open- ended questions we had posed to them. Based on our analysis
of those responses, we identified a set of

recurring themes and then classified each director*s responses in accord
with these recurring themes. At least two staff reviewers collectively
coded the responses from each of the 24 interviews and the coding was
verified when entered into a database we created for our analysis. During
phase two of this study, which was done from January to May 2002,

we conducted semistructured interviews with managers and supervisors,
human resources officials, and local union representatives from seven
federal agencies we selected for more detailed review* the Air Force, GSA,
IRS, ITA, the Mint, State, and VBA. We interviewed over 200 officials at
these seven agencies. Our interviews with these agency and union officials
focused on their views about the most effective flexibilities, additional
flexibilities needed, and protection of employee rights. We also asked

these officials to confirm and provide examples of the key practices we
had identified on the basis of our interviews with the human resources
directors and our related human capital work. To produce a general summary
of these agency and union officials* views, a staff reviewer coded their
responses to our questions according to the recurring themes we had
developed. A separate reviewer verified the coding when entering the
information into the database we created for our analysis. We sought to
obtain views from a broad and diverse set of officials who would have
relevant knowledge and experience regarding human capital flexibilities.
We did not employ random selection in our choice of individuals to

interview; thus the responses we obtained should not be viewed as a
representative sample of all managers and supervisors, human resources
officials, or local union officials at the seven agencies.

We selected the seven agencies for various reasons, including their
variety of existing human capital challenges and their range in use of
available human capital flexibilities. Specifically, we included Air Force
because the Department of Defense, Air Force*s parent department,
historically has represented a large percentage of civilian federal
employees and we had previously reported that the Air Force lacked
sufficient acquisition and logistic capabilities. We included GSA because
it had displayed a high use of monetary incentives compared to other large
federal agencies based on our review of data from OPM*s Central Personnel
Data File (CPDF). IRS

was included based on congressional requesters* interest in including an
agency with a strong union presence, and IRS was frequently cited as an
agency that had recently received increased authority to implement a broad
range of human capital flexibilities. ITA was included because the
Department of Commerce, ITA*s parent department, had shown a high use of
monetary incentives, and we had previously reported that ITA lacked an

experienced staff to monitor and enforce trade agreements. We selected the
Mint because it was originally a candidate to receive performancebased
organization (PBO) status in the late 1990s and it continued to seek
additional human capital flexibilities when it did not receive this PBO
designation. 34 We selected State because our review of CPDF data showed
it to be a low user of monetary incentives, and it had recently
established an often- cited skills development program for its information
technology employees. Lastly, we included VBA because the Department of
Veterans Affairs, VBA*s parent department, continued to actively seek
authority for increased human capital flexibilities, and we had previously
reported that VBA was lacking a sufficient workforce of skilled claims
processors. For the Air Force, we focused on work at Wright- Patterson Air
Force Base

in Dayton, Ohio, and Langley Air Force Base in Hampton, Virginia. For GSA,
IRS, VBA, and the Mint, we focused our work at their field offices in the
Philadelphia and San Francisco metropolitan areas. At State, we
concentrated our work on the IRM Bureau, the Bureau of Administration, and
the Bureau of Overseas Buildings Operations in Washington, D. C. At ITA,
we focused our work primarily on the headquarters office in Washington, D.
C. Our agency selection process was not designed to identify examples that
could be considered representative of all the human capital flexibilities
used at the seven agencies reviewed or the federal

government as a whole. In addition, we collected and analyzed data from
CPDF on the extent of use of human capital flexibilities, both
governmentwide and for the seven federal agencies we reviewed in more
detail. We also collected and analyzed documents from the seven selected
agencies on their experiences with and use of human capital flexibilities.
We did not attempt to verify the

usage data we gathered. We conducted our audit work in accordance with
generally accepted government auditing standards.

34 A PBO is a discrete management unit that commits to clear management
objectives, measurable goals, customer service standards, and specific
targets for improved performance. In exchange for these commitments, the
agency may be granted flexibilities to deviate from some governmentwide
requirements, such as certain personnel and procurement processes.

Comments from the Office Personnel

Appendi x II Management

Appendi x III Comments from the Internal Revenue Service

Appendi x IV Comments from the U. S. Mint

Comments from the International Trade

Appendi x V Administration

Appendi x VI

GAO Contacts and Staff Acknowledgments GAO Contacts J. Christopher Mihm or
Edward Stephenson, (202) 512- 6806 Acknowledgments In addition to the
persons named above, K. Scott Derrick, Charlesetta

Bailey, Tom Beall, Ridge Bowman, Molly K. Gleeson, Judith Kordahl, Sylvia
Shanks, Shelby D. Stephan, Gary Stofko, Mike Volpe, Gregory H. Wilmoth,
and Scott Zuchorski made key contributions to this report.

(450042)

a

GAO United States General Accounting Office

Why GAO Did This Study

An essential element to acquiring, developing, and retaining high- quality
federal employees is agencies* effective use of human capital
flexibilities. These flexibilities represent the policies and practices
that an agency has the authority to implement in managing its workforce.

Congressional requesters asked GAO to provide information on agency and
union officials* views about the most effective human capital
flexibilities, additional flexibilities needed, and whether additional
flexibilities could be implemented while also protecting employees*
rights. GAO was also asked to identify key practices for effective use of
flexibilities.

GAO interviewed the human resources directors of the federal government*s
24 largest departments and agencies, and representatives of 4 national
organizations representing federal employees and managers. GAO further
focused its efforts on 7 federal agencies* Department of the Air Force,
General Services Administration, Internal Revenue Service, International
Trade Administration, U. S. Mint, State Department, and Veterans Benefits
Administration* interviewing more than 200 managers, supervisors, human
resources officials, and union representatives in headquarters and field
locations.

December 2002 HUMAN CAPITAL Effective Use of Flexibilities Can Assist
Agencies in Managing Their Workforces

The full report, including GAO's objectives, scope, methodology, and
analysis is available at www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 2. For
additional information about the report, contact J. Christopher Mihm at
(202) 512- 6806 or by e- mail at mihmj@ gao. gov.

Highlights of GAO- 03- 2, a report to the Senate Committee on Governmental
Affairs and to its Subcommittees on International Security, Proliferation,
and Federal Services and on Oversight of Government Management,
Restructuring, and the District of Columbia United States General
Accounting Office

What GAO Found Agency and union officials* views on human capital
flexibilities.

Most effective flexibilities. Existing flexibilities that are most
effective in managing the workforce are work- life programs, such as
alternative work schedules, child care assistance, and transit subsidies;
monetary recruitment and retention incentives, such as recruitment bonuses
and retention allowances; special hiring authorities, such as student
employment and outstanding scholar programs; and incentive awards for
notable job performance and contributions, such as cash and time- off
awards.

Additional flexibilities needed. Additional flexibilities that would be
helpful in managing the workforce include more flexible pay approaches to
compensate federal employees, greater flexibility to streamline and
improve the federal hiring process, increased flexibility in addressing
employees* poor job performance, additional workforce restructuring
options, and expanded flexibility in acquiring and retaining temporary
employees.

Protection of employee rights. Managers, supervisors, and human resources
officials generally believed that additional human capital flexibilities
could be implemented in their agencies while also protecting employees*
rights. Union representatives, however, gave mixed views ranging from the
opinion that additional flexibilities could be implemented while still
protecting employee rights to concerns that managers would abuse their
authority.

Key practices for effective use of human capital flexibilities. GAO
identified six key practices for the effective use of human capital
flexibilities. These practices are (1) planning strategically and making
targeted investments, (2) ensuring stakeholder input in developing
policies and procedures, (3) educating managers and employees on the
availability and use of flexibilities, (4) streamlining administrative
processes, (5) building transparency and accountability into the system,
and (6) changing the organizational culture.

The insufficient and ineffective use of flexibilities can significantly
hinder the ability of federal agencies to recruit, hire, retain, and
manage their human capital. Congress recently debated the extent of
personnel flexibilities that should be granted to the new Department of
Homeland Security. While this decision was important to how the department
will operate, how personnel flexibilities are implemented is equally
important. G A O Accountability Integrity Reliability

Highlights

Page i GAO- 03- 2 Human Capital Flexibilities

Contents

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Appendix I

Appendix I Objectives, Scope, and Methodology

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Appendix I Objectives, Scope, and Methodology

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Appendix II

Appendix II Comments from the Office Personnel Management

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Appendix III

Appendix III Comments from the Internal Revenue Service

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Appendix IV

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Appendix V

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Appendix VI

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