Defense Transformation: Preliminary Observations on DOD's
Proposed Civilian Personnel Reforms (29-APR-03, GAO-03-717T).
DOD is in the midst of a major transformation effort including a
number of initiatives to transform its forces and improve its
business operations. DOD's legislative initiative would provide
for major changes in the civiliean and military human capital
management, make major adjustments in the DOD acquisition
process, affect DOD's organization structure, and change DOD's
reporting requirements to Congress, among other things. DOD's
proposed National Security Personnel System (NSPS) would provide
for wide-ranging changes in DOD's civilian personnel pay and
performance management, collective bargaining, rightsizing, and a
variety of other human capital areas. The NSPS would enable DOD
to develop and implement a consistent DOD-wide civilian personnel
system. This testimony provides GAO's preliminary observations on
aspects of DOD's legislative proposal to make changes to its
civilian personnel system and poses critical questions that need
to be considered.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-717T
ACCNO: A06746
TITLE: Defense Transformation: Preliminary Observations on DOD's
Proposed Civilian Personnel Reforms
DATE: 04/29/2003
SUBJECT: Internal controls
Strategic planning
Civilian employees
Personnel management
DOD National Security Personnel System
******************************************************************
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GAO-03-717T
Testimony Before the Subcommittee on Civil Service and Agency
Organization, Committee on Government Reform, House of Representatives
United States General Accounting Office
GAO For Release on Delivery Expected at 10: 00 a. m. EDT Tuesday, April
29, 2003 DEFENSE
TRANSFORMATION Preliminary Observations on DOD*s Proposed Civilian
Personnel Reforms
Statement of David M. Walker, Comptroller General of the United States
GAO- 03- 717T
Many of the basic principles underlying DOD*s civilian human capital
proposals have merit and deserve serious consideration. The federal
personnel system is clearly broken in critical respects* designed for a
time and workforce of an earlier era and not able to meet the needs and
challenges of our current rapidly changing and knowledge- based
environment. DOD*s proposal recognizes that, as GAO has stated and the
experiences of leading public sector organizations
here and abroad have found strategic human capital management must be the
centerpiece of any serious government transformation effort. More
generally, from a conceptual standpoint, GAO strongly supports the need to
expand broad banding and pay for performance- based systems in the federal
government. However, moving too quickly or prematurely at DOD or
elsewhere, can significantly raise the risk of doing it wrong. This could
also serve to severely set back the legitimate need to move to a more
performance and results- based system for the federal government as a
whole. Thus, while it is imperative that we take steps to better link
employee pay and other personnel
decisions to performance across the federal government, how it is done,
when it is done, and the basis on which it is done, can make all the
difference in whether or not we are successful. In our view, one key need
is to modernize
performance management systems in executive agencies so that they are
capable of supporting more performance- based pay and other personnel
decisions. Unfortunately, based on GAO*s past work, most existing federal
performance appraisal systems, including a vast majority of DOD*s systems,
are not currently designed to support a meaningful performance- based pay
system.
The critical questions to consider are: should DOD and/ or other agencies
be granted broad- based exemptions from existing law, and if so, on what
basis; and whether they have the institutional infrastructure in place to
make effective use of the new authorities. This institutional
infrastructure includes, at a minimum, a human capital planning process
that integrates the agency*s human capital policies, strategies, and
programs with its program goals and mission, and desired outcomes; the
capabilities to effectively develop and implement a new human capital
system; and, importantly, a set of adequate safeguards, including
reasonable transparency and appropriate accountability mechanisms to
ensure the fair, effective, and credible implementation of a new system.
In our view, Congress should consider providing governmentwide broad
banding and pay for performance authorities that DOD and other federal
agencies can use provided they can demonstrate that they have a
performance management system in place that meets certain statutory
standards, which can be certified to by a qualified and independent party,
such as OPM, within prescribed timeframes. Congress should also consider
establishing a governmentwide fund whereby agencies, based on a sound
business case, could apply for funding to modernize their performance
management systems and ensure that those systems have adequate safeguards
to prevent abuse. This approach would serve as a positive step to promote
high- performing organizations throughout the federal government while
avoiding fragmentation within the executive branch in the critical human
capital area.
DEFENSE TRANSFORMATION Preliminary Observations on DOD*s Proposed Civilian
Personnel Reforms
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 717T. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Derek Stewart at (202) 512- 5559 or stewartd@ gao.
gov.
Highlights of GAO- 03- 717T, testimony before the Subcommittee on Civil
Service and Agency Organization, Committee on Government Reform, House of
Representatives
April 29, 2003
DOD is in the midst of a major transformation effort including a number of
initiatives to transform its forces and improve its business operations.
DOD*s legislative initiative would provide for major changes in the
civilian and military human capital management, make major adjustments in
the DOD
acquisition process, affect DOD*s organization structure, and change DOD*s
reporting requirements to
Congress, among other things. DOD*s proposed National Security Personnel
System (NSPS) would provide for wide- ranging changes
in DOD*s civilian personnel pay and performance management, collective
bargaining, rightsizing,
and a variety of other human capital areas. The NSPS would enable DOD to
develop and implement a consistent DOD- wide civilian personnel system.
This testimony provides GAO*s
preliminary observations on aspects of DOD*s legislative proposal to make
changes to its civilian personnel system and poses critical questions that
need to be considered.
Page 1 GAO- 03- 717T Chairwoman Davis, Mr. Davis, and Members of the
Subcommittee: It is a pleasure to appear before you today to provide our
preliminary
observations on the Department of Defense*s (DOD) proposed National
Security Personnel System (NSPS) included as part of the Defense
Transformation for the 21st Century Act of 2003. As you know, DOD is in
the midst of a major transformation and it has undertaken a number of
related initiatives to transform its forces and fundamentally improve its
business operations. As part of DOD*s transformation process, the
Secretary of Defense and senior civilian and military leaders have
committed to adopt a capabilities- based approach to acquisition planning
and to improve the linkage between overall strategy and individual
investments. At the same time, DOD has embarked on a series of efforts to
achieve strategic savings and improve its business processes, including
financial management, support infrastructure reforms to include base
closures, information technology modernization, logistics reengineering,
and strategic human capital management. In that regard, I am pleased to
serve as an observer to the Defense Business Practice Implementation
Board. Notwithstanding these ongoing efforts, GAO has reported a range of
DOD challenges for many years. In addition, DOD also is covered by several
of GAO*s governmentwide high- risk areas, including the area of strategic
human capital management.
The proposed Defense Transformation for the 21st Century Act of 2003
represents a substantive legislative proposal that has both significant
precedent- setting implications for the government and far- reaching
implications on the way DOD is managed. Specifically, the critical
questions are whether DOD and/ or other agencies should be granted broad-
based exemptions from existing law, and if so, on what basis; and do
agencies have the institutional infrastructure in place to make effective
use of the new authorities they are seeking. DOD*s legislative initiative
would, among other things, provide for major changes in civilian and
military human capital management, make important adjustments to the DOD
acquisition process, affect DOD*s organization structure, and change DOD*s
reporting requirements to Congress.
As a starting point, and as agreed with the Subcommittee, today I will
provide our preliminary observations on DOD*s legislative proposal to make
changes to its civilian personnel system. The proposed NSPS would provide
for wide- ranging changes in DOD*s civilian personnel pay and performance
management, collective bargaining, rightsizing, and a variety of other
human capital areas. The NSPS would enable DOD to develop and implement a
consistent, DOD- wide civilian personnel system bringing
Page 2 GAO- 03- 717T together the many disparate systems that exist today.
The proposal, while providing a section- by- section analysis, does not
provide an adequate
justification given the significance of the proposed changes. In addition,
it is my understanding that a document containing a fully developed
justification for the proposed changes is not available. At the same time,
it our understanding that DOD*s current thinking is that NSPS will be
based on the work done by DOD*s Human Resources Best Practices Task Force.
The Task Force reviewed federal personnel demonstration projects and
selected alternative personnel systems to identify practices that it
considered promising for a DOD civilian human resources strategy. These
practices were outlined in a April 2, 2003, Federal Register notice asking
for comment on DOD*s plan to integrate all of its current science and
technology reinvention laboratory demonstration projects under a single
human capital framework consistent with the best practices DOD identified.
1 Many of the basic principles underlying DOD*s civilian human capital
proposals have merit and deserve serious consideration. The federal
personnel system is clearly broken in critical respects* designed for a
time and workforce of an earlier era and not able to meet the needs and
challenges of our current rapidly changing and knowledge- based
environment. DOD*s proposal recognizes that, as GAO has stated and the
experiences of leading public sector organizations here and abroad have
found, strategic human capital management must be the centerpiece of any
serious government transformation effort.
Human capital reforms at DOD obviously have important implications for
national security. However, given the massive size of DOD and the nature
and scope of the changes that are being considered, DOD*s proposal also
has important precedent- setting implications for federal human capital
management generally and should also be considered in that context. The
critical questions raised are should DOD and/ or other agencies be granted
broad- based exemptions from existing law, and if so, on what basis; and
whether they have the institutional infrastructure in place to make
effective use of the new authorities. This institutional infrastructure
includes, at a minimum, a human capital planning process that integrates
the agency*s human capital policies, strategies, and programs with its
program goals and mission, and desired outcomes; the capabilities to
effectively develop and implement a new human capital system; and
1 68 Fed. Reg. 16,119- 16,142 (2003).
Page 3 GAO- 03- 717T importantly a set of adequate safeguards, including
reasonable transparency and appropriate accountability mechanisms, to
ensure the
fair, effective, and credible implementation and application of a new
system.
Consistent with this view, we have long held that the first step toward
meeting the government*s human capital challenges is for agency leaders to
identify and make use of all the appropriate administrative authorities
available to them to manage their people for results, undertaken as part
of and consistent with proven change management practices. Much of the
authority agency leaders need to manage human capital strategically is
already available under current laws and regulations. This includes the
ability to develop modern, effective, and credible performance management
systems that would support more performance- based pay decisions. The
second step is for policymakers to pursue incremental legislative reforms
to give agencies additional tools and flexibilities to hire, manage, and
retain the human capital they need, particularly in critical occupations.
The third step is for all interested parties to work together to identify,
based in part on the experiences of the incremental reforms and
demonstration projects, the kinds of comprehensive legislative reforms in
the human capital area that should be enacted over time, taking into
account the extent to which existing approaches make sense in the current
and future operating environment. 2 With almost 700,000 civilian employees
on its payroll, DOD is the second
largest federal employer of civilians in the nation, after the Postal
Service. Defense civilian personnel, among other things, develop policy,
provide intelligence, manage finances, and acquire and maintain weapon
systems. Given the current global war on terrorism, the role of DOD*s
civilian workforce is expanding, such as participation in combat support
functions that free military personnel to focus on warfighting duties for
which they are uniquely qualified. Civilian personnel are also key to
maintaining DOD*s institutional knowledge because of frequent rotations of
military personnel. However, since the end of the Cold War, the civilian
workforce has undergone substantial change, due primarily to downsizing,
base realignments and closures, competitive sourcing initiatives, and
DOD*s changing missions. For example, between fiscal years 1989 and 2002,
DOD
2 U. S. General Accounting Office, Human Capital: Building on the Current
Momentum to Address High- Risk Issues, GAO- 03- 637T (Washington, D. C.:
April 8, 2003). Observations on
Selected Provisions of the Proposed NSPS
Page 4 GAO- 03- 717T reduced its civilian workforce by about 38 percent,
with an additional reduction of about 55,000 personnel proposed through
fiscal year 2007. Some DOD officials have expressed concern about a
possible shortfall of
critical skills because downsizing has resulted in a significant imbalance
in the shape, skills, and experience of its civilian workforce while more
than 50 percent of the civilian workforce will become eligible to retire
in the next 5 years. As a result, the orderly transfer of DOD*s
institutional knowledge is at risk.
These factors, coupled with the Secretary of Defense*s significant
transformation initiatives, make it imperative for DOD to strategically
manage its civilian workforce based on a total force perspective which
includes civilian personnel as well as active duty and reserve military
personnel and contractor personnel. This strategic management approach
will enable DOD to accomplish its mission by putting the right people in
the right place at the right time and at a reasonable cost.
NSPS is intended to be a major component of DOD*s efforts to more
strategically manage its workforce and respond to current and emerging
challenges. This morning I will highlight several of the key provisions of
NSPS that in our view are most in need of close scrutiny as Congress
considers the DOD proposal.
The DOD proposal would allow the Secretary of Defense to jointly prescribe
regulations with the Director of the Office of Personnel Management (OPM)
to establish a flexible and contemporary human resources management system
for DOD* NSPS. The joint issuance of regulations is similar to that set
forth in the Homeland Security Act of
2002 3 between the Secretary of Homeland Security and the Director of OPM
for the development of the Department of Homeland Security (DHS) human
resources management system. However, unlike the legislation creating DHS,
the Defense Transformation for the 21st Century Act would allow the
Secretary of Defense to waive the requirement for joint issuance of
regulations if, in his or her judgment, it is *essential to the national
security** which is not defined in the act. While the act specifies a
number of key provisions of Title 5 that shall not be altered or waived,
including those concerning veterans* preference, merit protections, and
safeguards against discrimination and prohibited personnel practices, the
3 Pub. L. No. 107- 296, Nov. 25, 2002. Providing the WideRanging
Authority to Design a New Civilian Personnel System
Page 5 GAO- 03- 717T act nonetheless would, in substance, provide the
Secretary of Defense with significant independent authority to develop a
separate and largely
autonomous human capital system for DOD. The DOD proposal also has
significant potential implications for governmentwide human capital
policies and procedures and for OPM as the President*s agent and advisor
for human capital matters and overseer of federal human capital management
activities. 4 In essence, the act would allow for the development of a
personnel system for the second largest segment of the federal workforce
that is not necessarily within the control or even direct influence of
OPM. To strike a better balance between reasonable management flexibility
and the need for a reasonable degree of consistency and adequate
safeguards to prevent abuse throughout the government, Congress should
consider making these provisions of the Defense Transformation for the
21st Century Act consistent with the Homeland Security Act of 2002, or at
a minimum, providing some statutory guidance on what would constitute a
situation *essential to the national security* that would warrant the
Secretary of Defense to act independently of the Director of OPM.
DOD states that it needs a human capital management system that provides
new and increased flexibility in the way it assesses and compensates its
employees, and toward that end, we understand that in implementing NSPS
DOD plans to strengthen its performance appraisal systems and implement
pay banding approaches as core components of any new DOD human capital
system. We have a long and successful experience in using pay banding with
our analyst staff as a result of the GAO Personnel Act of 1980. Certain
DOD components have had a number of years of experience with pay banding
through OPM*s personnel
demonstration projects, authorized by the Civil Service Reform Act of
1978, to test and introduce beneficial change in governmentwide human
resources management systems. For example, in 1980, the Navy personnel
demonstration project, commonly referred to as the China Lake
demonstration project, implemented a number of reforms including pay
banding and a pay for performance system. More recently, the Civilian
Acquisition Workforce personnel demonstration project (AcqDemo) was
4 We discuss OPM*s human capital leadership role in our report: Major
Management Challenges and Program Risks: Office of Personnel Management,
GAO- 03- 115 (Washington, D. C.: January 2003). Implementing Pay Reform
and Performance Management
Page 6 GAO- 03- 717T implemented in 1999 and created a pay banding system
that covers part of its civilian acquisition, technology, and logistics
workforce. 5 The expected results of AcqDemo*s pay banding system include
increased flexibility to
assign employees as well as increased pay potential and satisfaction with
advancement for employees. According to agency officials, an evaluation to
OPM on AcqDemo*s progress is scheduled to be available this June. Lastly,
DOD*s science and technology reinvention laboratory demonstration projects
all implemented some form of pay banding and pay for performance. OPM
reports that these reinvention laboratory demonstration projects have been
able to offer more competitive starting salaries. Additionally some labs*
turnover experience was significantly lower among highly- rated employees
and higher among employees with lower ratings. 6 DOD*s demonstration
projects clearly provide helpful insights and valuable lessons learned in
connection with broad banding and pay for performance efforts. At the same
time these projects and related DOD efforts involve less than 10 percent
of DOD*s civilian workforce and expanding these concepts to the entire
department will require significant effort and likely need to be
implemented in phases over several years.
As you know, there is growing agreement on the need to better link
individual pay to performance. Establishing such linkages is essential if
we expect to maximize the performance and assure the accountability of the
federal government for the benefit of the American people. As a result,
from a conceptual standpoint, we strongly support the need to expand broad
banding approaches and pay for performance- based systems in the federal
government. However, moving too quickly or prematurely at DOD or elsewhere
can significantly raise the risk of doing it wrong. This could also serve
to severely set back the legitimate need to move to a more performance and
results- based system for the federal government as a whole. Thus, while
it is imperative that we take steps to better link employee pay to
performance across the federal government, how it is done, when it is
done, and the basis on which it is done can make all the difference in
whether or not such efforts are successful. In our view, one key need is
to modernize performance management systems in executive agencies so that
they are capable of adequately supporting more
5 U. S. General Accounting Office, Acquisition Workforce: Status of Agency
Efforts to Address Future Needs, GAO- 03- 55 (Washington, D. C.: Dec. 18,
2002). 6 U. S. Office of Personnel Management, 2002 Summative Evaluation:
DOD S& T Reinvention Laboratory Demonstration Program (Washington, D. C.:
August 2002).
Page 7 GAO- 03- 717T performance- based pay and other personnel decisions.
Unfortunately, based on GAO*s past work, most existing federal performance
appraisal
systems, including a vast majority of DOD*s systems, are not designed to
support a meaningful performance- based pay system.
The bottom line is that in order to receive any additional
performancebased pay flexibility for broad based employee groups, agencies
should have to demonstrate that they have modern, effective, credible,
and, as appropriate, validated performance management systems in place
with adequate safeguards, including reasonable transparency and
appropriate accountability mechanisms, to ensure fairness and prevent
politicalization and abuse.
At your request Madam Chairwoman, and that of Senator Voinovich, we
identified key practices leading public sector organizations both here in
the United States and abroad have used in their performance management
systems to link organizational goals to individual performance and create
a *line of sight* between an individual*s activities and organizational
results. 7 These practices can help agencies develop and implement
performance management systems with the attributes necessary to
effectively support pay for performance.
More specifically, Congress should consider establishing statutory
standards that an agency must have in place before it can implement broad
banding or a more performanced- based pay program. As the request of
Congressman Danny Davis, we developed an initial list of possible
safeguards to help ensure that any additional flexibility Congress may
grant for expanding pay for performance management systems in the
government are fair, effective, and credible. We provided an initial list
to Congressman Davis late last week. This initial list of safeguards was
developed based on our extensive body of work looking at the performance
management practices used by leading public sector organizations both in
the United States and in other countries as well as our own experiences at
GAO in implementing a modern performance management system for our own
staff. We believe that the following could provide a starting point for
developing a set of statutory safeguards in
7 U. S. General Accounting Office, Results- Oriented Cultures: Creating a
Clear Linkage between Individual Performance and Organizational Success,
GAO- 03- 488 (Washington, D. C.: Mar. 14, 2003).
Page 8 GAO- 03- 717T connection with any additional efforts to expand pay
for performance systems.
Assure that the agency*s performance management systems (1) link to the
agency*s strategic plan, related goals, and desired outcomes, and (2)
result in meaningful distinctions in individual employee performance. This
should include consideration of critical competencies and achievement of
concrete results.
Involve employees, their representatives, and other stakeholders in the
design of the system, including having employees directly involved in
validating any related competencies, as appropriate.
Assure that certain predecisional internal safeguards exist to help
achieve the consistency, equity, nondiscrimination, and nonpoliticization
of the performance management process (e. g., independent reasonableness
reviews by Human Capital Offices and/ or Offices of Opportunity and
Inclusiveness or their equivalent in connection with the establishment and
implementation of a performance appraisal system, as well as reviews of
performance rating decisions, pay determinations, and promotion actions
before they are finalized to ensure that they are merit- based; internal
grievance processes to address employee complaints; and pay panels whose
membership is predominately made up of career officials who would consider
the results of the performance appraisal process and other information in
connection with final pay decisions). Assure reasonable transparency and
appropriate accountability
mechanisms in connection with the results of the performance management
process (e. g., publish overall results of performance management and pay
decisions while protecting individual confidentiality, and report
periodically on internal assessments and employee survey results).
The above items should help serve as a starting point for Congress to
consider in crafting possible statutory safeguards for executive agencies*
performance management systems. OPM would then issue guidance implementing
the legislatively defined safeguards. The effort to develop such
safeguards could be part of a broad- based expanded pay for
performance authority under which whole agencies and/ or employee groups
could adopt broad- banding and move to more pay for performance oriented
systems if certain conditions are met. Specifically, the agency would have
to demonstrate, and OPM would have to certify, that a modern, effective,
credible, and, as appropriate, validated performance management system
with adequate safeguards, including reasonable transparency and
appropriate accountability mechanisms, is in place to support more
performance- based pay and related personnel decisions before the agency
could implement a new system. In this regard OPM
Page 9 GAO- 03- 717T should consider adopting class exemption approaches
and OPM should be required to act on any individual certifications within
prescribed time frames (e. g., 30- 60 days). This approach would allow for
a broader- based
yet more conceptually consistent approach in this critical area. It would
also facilitate a phased- implementation approach throughout government.
The list is not intended to cover all the attributes of a modern,
resultsoriented
performance management system. Rather, the items on the list cover
possible safeguards for performance management systems to help ensure
those systems are fair, effective, and credible.
Congress should also consider establishing a governmentwide fund whereby
agencies, based on a sound business case, could apply for funds to
modernize their performance management systems and ensure those systems
have adequate safeguards to prevent abuse. This approach would serve as a
positive step to promote high- performing organizations throughout the
federal government while avoiding fragmentation within the executive
branch in the critical human capital area.
The Senior Executive Service (SES) needs to lead the way in the federal
government*s effort to better link pay to performance. We have reported
that there are significant opportunities to strengthen efforts to hold
senior executives accountable for results. 8 In particular, more progress
is needed in explicitly linking senior executive expectations for
performance to results- oriented organizational goals and desired
outcomes, fostering the necessary collaboration both within and across
organizational boundaries to achieve results, and demonstrating a
commitment to lead and facilitate
change. These expectations for senior executives will be critical to keep
agencies focused on transforming their cultures to be more
resultsoriented, less hierarchical, more integrated, and externally
focused and thereby be better positioned to respond to emerging internal
and external challenges, improve their performance, and assure their
accountability.
Given the state of agencies* performance management systems, Congress
should consider starting federal results- oriented pay reform with the
SES. In that regard and similar to the Homeland Security Act, the proposed
NSPS would increase the current total allowable annual compensation limit
for senior executives up to the Vice President*s total annual
8 U. S. General Accounting Office, Results- Oriented Cultures: Using
Balanced Expectations to Manage Senior Executive Performance, GAO- 02- 966
(Washington, D. C.: Sept. 27, 2002). Establishing Senior
Executive Service Pay and Performance Management
Page 10 GAO- 03- 717T compensation. However, the Homeland Security Act
provides that OPM, with the concurrence of the Office of Management and
Budget, certify that
agencies have performance appraisal systems that, as designed and applied,
make meaningful distinctions based on relative performance. NSPS does not
include such a certification provision. Congress should consider requiring
OPM to certify that the DOD SES performance management system makes
meaningful distinctions in performance and employs the other practices
used by leading organizations to develop effective performance management
systems that I mentioned earlier, before DOD could increase the annual
compensation limit for senior executives. 9 The proposed Defense
Transformation for the 21st Century Act includes
provisions intended to ensure collaboration with employee representatives
in the planning, development, and implementation of a human resources
management system. For example, employee representatives are to be given
the opportunity to review and make recommendations on the proposed NSPS.
The Secretary of Defense and the Director of OPM are to provide employee
representatives with a written description of the proposed system, give
these representatives at least 30 calendar days to review and make
recommendations on the proposal, and fully and fairly consider each
recommendation. DOD may immediately implement the parts of the proposed
system that did not receive recommendations or those recommendations they
chose to accept from the employee representatives. While these provisions
are designed to help assure that employees and their authorized
representatives play a meaningful role on the design and implementation of
any new human capital system, DOD
does not have a good track record in reaching out to key stakeholders. In
fact, it is my understanding that neither DOD employees nor their
authorized representatives played a meaningful role in connection with the
design of the legislative proposal that is the subject of this hearing.
For the recommendations from the employee representatives that the
Secretary and the Director do not accept, the Secretary and the Director
are to notify Congress and meet and confer with employee representatives
in an attempt to reach agreement on how to proceed with these
recommendations. If an agreement has not been reached after 30 days, and
the Secretary determines that further consultation with employee
9 GAO- 03- 488. Employees and Employee
Organizations Involvement in Creating NSPS
Page 11 GAO- 03- 717T representatives will not produce agreement, the
Secretary may implement any or all parts of the proposal, including any
modifications made in
response to the recommendations. The Secretary is to notify Congress of
the implementation of any part of the proposal, any changes made to the
proposal as a result of recommendations from the employee representatives,
and the reasons why implementation is appropriate.
Although the procedures called for in the DOD proposal are similar to
those enacted in the Homeland Security Act, the latter states explicitly
the intent of Congress on the importance for employees to be allowed to
participate in a meaningful way in the creation of any human resources
management system affecting them. To underscore the importance that
Congress places on employee involvement in the development and
implementation of NSPS, Congress should consider including similar
language as that found in the Homeland Security Act.
More generally, and aside from the specific statutory provisions on
consultation, the active involvement of employees will be critical to the
success of NSPS. We have reported that the involvement of employees both
directly and indirectly is crucial to the success of new initiatives,
including implementing a pay for performance system. 10 High- performing
organizations have found that actively involving employees and
stakeholders, such as unions or other employee associations when
developing results- oriented performance management systems helps improve
employees* confidence and belief in the fairness of the system and
increases their understanding and ownership of organizational goals
and objectives. This involvement must be early, active, and continuing if
employees are to gain a sense of understanding and ownership for the
changes that are being made.
The legislation has a number of provisions designed to give DOD
flexibility to help obtain key critical talent. Specifically, it allows
DOD greater flexibility to (1) augment the use of temporary appointment
authorities, (2) hire experts and consultants and pay them special rates,
(3) define benefits for overseas employees, and (4) enter into personal
services contracts for experts and consultants for national security
missions,
10 U. S. General Accounting Office, Insights for U. S. Agencies from Other
Countries* Performance Management Initiatives, GAO- 02- 862 (Washington,
D. C.: Aug. 2, 2002) and
Human Capital: Practices That Empowered and Involved Employees, GAO- 01-
1070 (Washington, D. C.: Sept. 14, 2001). Attracting Key Talent
Page 12 GAO- 03- 717T including for service outside of the United States.
Specifically, the Secretary would have the authority to establish a
program to attract highly qualified experts in needed occupations with the
flexibility to establish the
rate of pay, eligibility for additional payments, and terms of the
appointment. These authorities give DOD considerable flexibility to obtain
and compensate individuals and exempt them from several provisions of
current law. While we have strongly endorsed providing agencies with
additional tools and flexibilities to attract and retain needed talent,
the broad exemption from some existing ethics and other personnel
authorities without prescribed limits on their use raises some concern.
Accordingly, Congress should consider placing numerical or percentage
limitations on the use of these provisions or otherwise specifically
outline basic safeguards to ensure such provisions are used appropriately.
The proposed Defense Transformation for the 21st Century Act would provide
the Secretary with a number of broad authorities related to rightsizing
and organizational alignment. These include authorizing the Secretary to
restructure or reduce the workforce by establishing programs using
voluntary early retirement eligibility and separation payments, or both.
In addition, the Secretary would be allowed to appoint U. S. citizens who
are at least 55 years of age to the excepted service for a period of 2
years, with a possible 2- year extension, subject only to certain
provisions preventing displacement of current employees. The proposal also
provides that annuitants who receive an annuity from the Civil Service
Retirement and Disability Fund and become employed in a position within
the Department of Defense shall continue to receive their unreduced
annuity. This and selected other NSPS provisions will clearly have
incremental
budget implications for which we have not seen any related cost estimate.
Furthermore, this and other selected NSPS provisions would create an
unlevel playing field for experienced talent within the civilian
workforce.
Authorities such as voluntary early retirements have proven to be
effective tools in strategically managing the shape of the workforce. I
have exercised the authority that Congress granted me to offer voluntary
early retirements in GAO in both fiscal years 2002 and 2003 as one element
of
our strategy to shape the GAO workforce. However, given DOD*s past efforts
in using existing rightsizing tools, there is reason to be concerned that
DOD may struggle to effectively manage additional authorities that
may be provided. While DOD has used existing authorities in the past to
mitigate the adverse effects of force reductions, the approach to
reductions was not oriented toward strategically shaping the makeup of the
workforce. We have previously reported that the net effect of lack of
Rightsizing and
Organizational Alignment
Page 13 GAO- 03- 717T attention to workforce shaping is a civilian
workforce that is not balanced by age or experience, which risks the
orderly transfer of institutional
knowledge. 11 DOD thus may be challenged in using new authorities in a
cohesive, integrated way that supports achieving mission results, absent a
comprehensive and integrated human capital strategy and workforce plan. In
the past, OPM has managed its authority to reemploy an annuitant with
no reduction in annuity on a case- by- case basis. The NSPS proposal,
which broadly grants such treatment, raises basic questions about the
intent and design of the federal benefits or total compensation of federal
employees and obviates the importance of establishing an effective DOD
partnership with OPM in prescribing the use of this authority. As noted
previously, providing such authority only to DOD would provide DOD a
competitive advantage in the market place that would place other agencies
at a disadvantage. It would also involve incremental costs that have yet
to be estimated. Flexible approaches to shaping the workforce, such as 2-
year excepted service appointments, may be helpful in avoiding long- term
commitments for short- term requirements, addressing transition gaps, and
smoothing outsourcing strategies. At the same time, these authorities
represent tools that are not effective on their own, rather they are
elements that need to be developed into an effective strategy and aligned
with program goals and missions.
The legislation could also allow DOD to revise Reduction- in- Force (RIF)
rules to place greater emphasis on an employee*s performance. DOD has
indicated that it will be considering for application DOD- wide, personnel
practices that were identified in the April 2, 2003, Federal Register
notice.
This notice describes revised RIF procedures that change the order in
which employees would be retained under a RIF order. Specifically,
employees could be placed on a retention list in the following order: type
of employment (i. e., permanent, temporary), level of performance, and
veterans* preference eligibility (disabled veterans will be given
additional priority), which we note would reduce the order in which
veterans* preference is currently provided. While we conceptually support
revised RIF procedures that involve much greater consideration of an
employee*s performance, as I pointed out above, agencies must have modern,
effective and credible performance management systems in place to properly
implement such authorities.
11 U. S. General Accounting Office, Strategic Approach Should Guide DOD
Civilian Workforce Management, GAO/ T- GGD/ NSIAD- 00- 120 (Washington, D.
C.: Mar. 9, 2000).
Page 14 GAO- 03- 717T The proposed NSPS would allow the Secretary, after
consultation with the Merit Systems Protection Board (MSPB), to prescribe
regulations
providing fair treatment in any appeals brought by DOD employees relating
to their employment. The proposal states that the appeals procedures shall
ensure due process protections and expeditious handling, to the maximum
extent possible. In this regard, the proposal provides that presently
applicable appeals procedures should only be modified insofar as such
modifications are designed to further the fair, efficient, and expeditious
resolution of matters involving DOD employees. This provision is
substantially the same as a similar provision in the Homeland Security Act
of 2002 allowing DHS to prescribe regulations for employee appeals related
to their employment. As required of the Secretary of DHS, the Secretary of
Defense would be required to consult with MSPB prior to issuing
regulations. However, neither the Homeland Security Act nor the proposed
legislation expressly requires that employee appeals be heard and decided
by the MSPB. There is also no express provision for judicial review of
decisions regarding employee appeals decisions.
Given the transparency of the federal system dispute resolution and its
attendant case law, the rights and obligations of the various parties
involved is well developed. It is critical that any due process changes
that are implemented after consultation with MSPB result in dispute
resolution
processes that are not only fair and efficient but, as importantly,
minimize any possible perception of unfairness.
The critical need for an institutional infrastructure to develop and
support change has been a consistent theme raised throughout the
observations I have been providing on some of the specific aspects of the
proposed NSPS. This institutional infrastructure includes, at a minimum, a
human capital planning process that integrates the department*s human
capital policies, strategies, and programs with DOD*s mission, goals, and
desired outcomes; the capabilities to effectively develop and implement a
new human capital system; and a set of adequate safeguards, including
reasonable transparency and appropriate accountability mechanisms to
ensure the fair and merit- based implementation and application of a new
system. Quite simply, in the absence of the right institutional
infrastructure, granting additional human capital authorities will provide
little advantage and could actually end up doing damage if the new
flexibilities are not implemented properly. Our work looking at DOD*s
strategic human capital planning efforts and our work looking across the
federal government at the use of human capital flexibilities and related
Establishing Employee
Appeals Procedures Building the Institutional Infrastructure Needed to
Support NSPS
Page 15 GAO- 03- 717T human capital efforts underscores the critical steps
that DOD needs to take to properly develop and effectively implement any
new personnel
authorities. Our work here and abroad has consistently demonstrated that
leading organizations align their human capital approaches, policies,
strategies, and programs with their mission and programmatic goals. Human
capital plans that are aligned with mission and program goals integrate
the achievement of human capital objectives with the agency*s strategic
and program goals. Careful and thoughtful human capital planning efforts
are critical to making intelligent competitive sourcing decisions. The
Commercial Activities Panel, which I was privileged to chair, called for
federal sourcing policy to be *consistent with human capital practices
designed to attract, motivate, retain, and reward a high performing
workforce* and highlighted a number of human capital approaches to help
achieve that objective. 12 In April 2002, DOD published a strategic plan
for civilian personnel. 13 However, as we reported in March 2003, 14 top-
level leadership at the
department and the component levels has not until recently been
extensively involved in strategic planning for civilian personnel;
however, civilian personnel issues appear to be a higher priority for top-
level leaders today than in the past. Although DOD began downsizing its
civilian workforce more than a decade ago, top- level leadership has not,
until recently, developed and directed reforms to improve planning for
civilian personnel. With the exception of the Army and the Air Force,
neither the
department nor the components in our March review had developed 12
Commercial Activities Panel, Improving the Sourcing Decisions of the
Government
(Washington, D. C.: April 2002). 13 Civilian Human Resources Strategic
Plan 2002- 2008. At this time, DOD also published two strategic plans for
military personnel (one addressing military personnel priorities and
one addressing quality of life issues for service members and their
families). In a December 2002 report (Military Personnel: Oversight
Process Needed to Help Maintain Momentum of DOD*s Strategic Human Capital
Planning, GAO- 03- 237), we addressed aspects of the two plans concerning
benefits for active duty military personnel, noting that the plans were
incomplete and that DOD needed a process to oversee the plans*
implementation. 14 U. S. General Accounting Office, DOD Personnel: DOD
Actions Needed to Strengthen Civilian Human Capital Strategic Planning and
Integration with Military Personnel and Sourcing Decisions, GAO- 03- 475
(Washington, D C.: Mar. 28, 2003) and DOD Personnel: DOD Comments on GAO*s
Report on DOD*s Civilian Human Capital Strategic Planning, GAO- 03- 690R
(Washington, D. C.: Apr. 18, 2003). Strategic Human Capital
Planning at DOD
Page 16 GAO- 03- 717T strategic plans to address challenges affecting the
civilian workforce until 2001 or 2002, which is indicative of civilian
personnel issues being an emerging priority.
In addition, we reported that top- level leaders in the Air Force, the
Marine Corps, the Defense Contract Management Agency, and the Defense
Finance and Accounting Service have been or are working in partnership
with their civilian human capital professionals to develop and implement
civilian strategic plans; such partnership is increasing in the Army and
not as evident in the Navy. Moreover, DOD*s issuance of its departmentwide
civilian human capital plan begins to lay a foundation for strategically
addressing civilian human capital issues; however, DOD has not provided
guidance on aligning the component- level plans with the department- level
plan to obtain a coordinated focus to carry out the Secretary of Defense*s
transformation initiatives in an effective manner. High- level leadership
attention is critical to developing and directing reforms because, without
the overarching perspective of such leaders as Chief Operating Officers
and the Chief Human Capital Officers, reforms may not be sufficiently
focused on mission accomplishment, and without their support, reforms may
not receive the resources needed for successful implementation. We have
previously reported that the concept of a Chief Operating Officer
(COO) could offer the leadership to help elevate attention on key
management issues and transformational change, integrate these various
efforts, and institutionalize accountability for addressing management
issues and leading transformational change both within and between
administrations. 15 In our view, DOD is a prime candidate to adopt this
COO concept. In addition, if Congress provides DOD with many of the
flexibilities it is seeking under the NSPS, the basis for adding a COO
position at DOD would be even stronger.
Despite the progress that has been made recently, the DOD human capital
strategic plans we reviewed, for the most part, were not fully aligned
with the overall mission of the department or respective components,
results
oriented, or based on data about the future civilian workforce. For
example, the goals and objectives contained in strategic plans for
civilian personnel were not explicitly aligned with the overarching
missions of the respective organizations. Consequently, it is difficult to
determine whether
15 U. S. General Accounting Office, Highlights of a GAO Roundtable: The
Chief Operating Officer Concept: A Potential Strategy To Address Federal
Governance Challenges,
GAO- 03- 192SP (Washington, D. C.: Oct. 4, 2002).
Page 17 GAO- 03- 717T DOD*s and the components* strategic goals are
properly focused on mission achievement. In addition, none of the plans
contained resultsoriented
performance measures that could provide meaningful data critical to
measuring the results of their civilian human capital initiatives (i. e.,
programs, policies, and processes). Thus, DOD and the components cannot
gauge the extent to which their human capital initiatives contribute to
achieving their organizations* mission. Also, for the most part, the
civilian human capital plans in our review did not contain detailed
information on the skills and competencies needed to successfully
accomplish future missions. Without information about what is needed in
the future workforce, it is unclear if DOD and its components are
designing and funding initiatives that are efficient and effective in
accomplishing the mission, and ultimately contributing to force readiness.
Lastly, the DOD civilian strategic plans we reviewed did not address how
the civilian workforce will be integrated with their military counterparts
or with sourcing initiatives. At the department level, the strategic plan
for civilian personnel was prepared separately from corresponding plans
for military personnel and not integrated to form a seamless and
comprehensive strategy and did not address how DOD plans to link its human
capital initiatives with its sourcing plans, such as efforts to outsource
non- core responsibilities. For the most part, at the component level, the
plans set goals to integrate planning for the total workforce, to include
civilian, military, and contractor personnel. The Air Force and the Army,
in particular, have begun to integrate their strategic planning efforts
for civilian and military personnel, also taking contractor
responsibilities into consideration. Without integrated planning, goals
for shaping and deploying civilian, military, and contractor personnel may
not be consistent with and support each other. Consequently, DOD and its
components may not have the workforce with the skills and competencies
needed to accomplish tasks critical to assuring readiness and achieving
mission success.
In our March report we recommended, among other things, that DOD improve
future revisions and updates to the departmentwide strategic human capital
plan by more explicitly aligning its elements with DOD*s overarching
mission, including performance measures, and focusing on future workforce
needs. DOD only partially concurred with our recommendation, and, as
explanation, stated that the recommendation did not recognize the
involvement in and impact of DOD*s Quadrennial Defense Review on the
development of the departmentwide plan. We also recommended that DOD
develop a departmentwide human capital strategic plan that integrates both
military and civilian workforces and
Page 18 GAO- 03- 717T takes into account contractor roles and sourcing
initiatives. DOD did not concur with this recommendation stating that it
has both a military and
civilian plan, and the use of contractors is just another tool to
accomplish the mission, not a separate workforce with separate needs to
manage. The intent of our recommendation is not to say that DOD has a
direct responsibility to manage contractor employees, but rather to
recognize that strategic planning for the civilian workforce should be
undertaken in the context of the total force* civilian, military, and
contractors* since
the three workforces need to perform their responsibilities in a seamless
manner to accomplish DOD*s mission. In commenting on our recommendations,
the Under Secretary of Defense for Personnel and
Readiness stated that DOD is in the early stages of its strategic planning
efforts. We recognize this and believe that our recommendations represent
opportunities that exist to strengthen its developing planning efforts.
Our work has identified a set of key practices that appear to be central
to the effective use of human capital authorities. These practices, which
are shown in figure 1, center on effective planning and targeted
investments, involvement and training, and accountability and cultural
change. 16 16 U. S. General Accounting Office, Human Capital: Effective
Use of Flexibilities Can
Assist Agencies in Managing Their Workforces, GAO- 03- 2 (Washington, D.
C.: Dec. 6, 2002). The Capabilities Needed to
Effectively Develop and Implement Human Capital Flexibilities
Page 19 GAO- 03- 717T Figure 1: Key Practices for Effective Use of Human
Capital Flexibilities
Congress should consider the extent to which an agency is capable of
employing these practices before additional human capital flexibilities
are implemented. In the context of NSPS, Congress should consider whether
and to what extent DOD is using those practices.
I have discussed throughout my statement today the importance of moving to
a new human capital system which provides reasonable management
flexibility along with adequate safeguards, reasonable transparency, and
appropriate accountability mechanisms to prevent abuse of employees. In
addition to the suggestions made above, Congress should consider
requiring DOD to fully track and periodically report on its performance.
This requirement would be fully consistent with those contained in our
Adequate Safeguards,
Reasonable Transparency, and Appropriate Accountability
Page 20 GAO- 03- 717T calendar year 2000 human capital legislation, which
required us to comprehensively assess our use of the authorities granted
to us under the
act. 17 More generally, Congress should consider requiring DOD to
undertake evaluations that are broadly modeled on the evaluation
requirements of OPM*s personnel demonstration program. Under the
demonstration project authority, agencies must evaluate and periodically
report on results, implementation of the demonstration project, cost and
benefits, impacts on veterans and other EEO groups, adherence to merit
principles, and extent to which the lessons from the project can be
applied elsewhere, including governmentwide. This evaluation and reporting
requirement would facilitate congressional oversight of NSPS, allow for
any mid- course corrections in its implementation, and serve as a tool for
documenting best practices and sharing lessons learned with employees,
stakeholders, other federal agencies, and the public. DOD has stated that
it would continue its evaluation of the science and technology reinvention
laboratory demonstration projects when they are integrated under a single
human capital framework. In summary, DOD*s civilian human capital
proposals raise several critical questions. Should DOD and/ or other
federal agencies be granted broadbased exemptions from existing law, and
if so, on what basis? Does DOD have the institutional infrastructure in
place to make effective use of the new authorities? This institutional
infrastructure includes, at a minimum, a human capital planning process
that integrates the agency*s human capital policies, strategies, and
programs with its program goals and mission, and desired outcomes; the
capabilities to effectively develop and implement a new human capital
system; and a set of adequate safeguards, including reasonable
transparency and appropriate accountability mechanisms to ensure the fair,
effective, and credible implementation and application of a new system.
Many of the basic principles underlying DOD*s civilian human capital
proposals have merit and deserve the serious consideration they are
receiving here today and will no doubt be received by others in the coming
17 Our October 2000 legislation gave us tools to realign our workforce in
light of mission needs and overall budgetary constraints; correct skills
imbalances; and reduce high- grade, managerial, or supervisory positions
without reducing the overall number of GAO employees. This legislation
allowed us to create a technical and scientific career track at a
compensation level consistent to the SES. It also allowed us to give
greater consideration
to performance and employee skills and knowledge in any RIF actions.
Concluding Observations
Page 21 GAO- 03- 717T weeks and months. However, the same critical
questions should be posed to the DOD proposal. Should DOD and/ or other
federal agencies be
granted broad- based exemptions from existing law, and if so, on what
basis? In addition, Congress and DOD should carefully assess the degree to
which DOD has the institutional infrastructure in place to make effective
use the new authorities it is seeking. Our work has shown that while
progress has been and is being made, additional efforts are needed by DOD
to integrate its human capital planning process with the department*s
program goals and mission. The practices that have been shown to be
critical to the effective use of flexibilities provide a validated roadmap
for DOD and Congress to consider. Finally, as I have pointed out in
several key areas, Congress should consider, if the authorities are
granted, establishing additional safeguards to ensure the fair, merit-
based, transparent, and accountable implementation and application of
NSPS.
In our view, Congress should consider providing governmentwide broad
banding and pay for performance authorities that DOD and other federal
agencies can use provided they can demonstrate that they have a
performance management system in place that meets certain statutory
standards, which can be certified to by a qualified and independent party,
such as OPM. Congress should also consider establishing a governmentwide
fund whereby agencies, based on a sound business case, could apply for
funds to modernize their performance management systems and ensure that
those systems have adequate safeguards to prevent abuse. This would serve
as a positive step to promote highperforming organizations throughout the
federal government while avoiding further fragmentation within the
executive branch in the critical human capital area.
This morning, I have offered some preliminary observations on some aspects
of the proposal. However, these preliminary observations have not included
some serious concerns I have with other sections of the proposed
legislation that go beyond the civilian personnel proposal. My
observations have included suggestions for how Congress can help DOD
effectively address its human capital challenges and ensure that NSPS is
designed and implemented in an effective, efficient, and fair manner that
meets the current and future needs of DOD, its employees, and the American
people. Human capital reforms at DOD obviously have important implications
for national security and precedent- setting implications for
governmentwide human capital management. Given the massive size of DOD and
the magnitude of the nature and scope of the changes that are being
considered, such reform at DOD also has important precedent- setting
Page 22 GAO- 03- 717T implications for federal human capital management
generally and should be considered in that context. We look forward to
continuing to support Congress and work with DOD in
addressing the vital transformation challenges it faces. Madam Chairwoman
and Mr. Davis, this concludes my prepared statement. I would be pleased to
respond to any questions that you may have.
For further information on human capital issues at DOD, please contact
Derek Stewart, Director, Defense Capabilities and Management on (202) 512-
5559 or at stewartd@ gao. gov. For further information on governmentwide
human capital issues, please contact J. Christopher Mihm, Director,
Strategic Issues, on (202) 512- 6806 or at mihmj@ gao. gov. Individuals
making key contributions to this testimony included William Doherty,
Clifton G. Douglas, Jr., Christine Fossett, Bruce Goddard, Judith Kordahl,
Janice Lichty, Bob Lilly, Lisa Shames, Ellen Rubin, Edward H. Stephenson,
Jr., Tiffany Tanner, Marti Tracy, and Michael Volpe. Contacts and
Acknowledgments
(450212)
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