Posthearing Questions Related to Proposed DOD Human Capital	 
Reform (03-JUL-03, GAO-03-965R).				 
                                                                 
On June 4, 2003, GAO testified before the Senate Committee on	 
Governmental Affairs at a hearing entitled "Transforming the	 
Department of Defense Personnel System: Finding the Right	 
Approach." This letter responds to a request that we provide	 
answers to posthearing questions from Senator George V. Voinovich
and Senator Thomas R. Carper concerning the proposed Department  
of Defense (DOD) Human Capital Reform.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-965R					        
    ACCNO:   A07461						        
  TITLE:     Posthearing Questions Related to Proposed DOD Human      
Capital Reform							 
     DATE:   07/03/2003 
  SUBJECT:   Federal personnel legislation			 
	     Human resources utilization			 
	     Personnel management				 
	     Proposed legislation				 

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GAO-03-965R

GAO- 03- 965R DOD Human Capital Reform

United States General Accounting Office Washington, DC 20548 Comptroller
General

of the United States

July 3, 2003 The Honorable Susan M. Collins Chairman Committee on
Governmental Affairs United States Senate

Subject: Posthearing Questions Related to Proposed Department of Defense
(DOD) Human Capital Reform On June 4, 2003, I testified before your
committee at a hearing entitled *Transforming

the Department of Defense Personnel System: Finding the Right Approach.* 1
This letter responds to your request that I provide answers to posthearing
questions from Senator George V. Voinovich and Senator Thomas R. Carper.
The questions and responses follow.

Questions from Senator Voinovich 1. Mr. Walker, in your written testimony,
you support the phased in approach for DOD reforms. While this will give
the Department additional time to establish a better personnel system, do
you believe it may contribute to a fractured atmosphere, potentially
creating a culture of *haves,* employees benefiting from the new system
and *have- nots?*

As I have testified, we believe that it is critical that agencies or
components have in place the human capital infrastructure and safeguards
before implementing new human capital reforms. This institutional
infrastructure includes, at a minimum (1) a human capital planning process
that integrates the agency*s human capital policies, strategies, and
programs with its program mission, goals, and desired outcomes, (2) the
capabilities to develop and implement a new human capital system
effectively, and (3) a modern, effective, credible and, as appropriate,
validated performance appraisal and management system that includes
adequate safeguards, such as reasonable transparency and appropriate
accountability mechanisms, to ensure the fair, effective, and
nondiscriminatory implementation of the system.

Clearly, some components of DOD may have such an infrastructure and
safeguards in place before others. However, as we have noted, in the human
capital area, how you do something and when you do it, can be as important
as what you do. In our view,

1 U. S. General Accounting Office, Human Capital: Building on DOD*s Reform
Effort to Foster Governmentwide Improvements, GAO- 03- 851T (Washington,
D. C.: June 4, 2003).

GAO- 03- 965R DOD Human Capital Reform Page 2 the positive benefits of
implementing the new human capital authorities properly and

effectively will far outweigh any potential issues of some DOD components
benefiting from the new personnel authorities before others.

2. In the Homeland Security legislation, Congress gave the new Department
broad flexibility to amend six areas of Title 5 (performance appraisals,
classification, pay rates and systems, labor management relations, adverse

actions, and appeals). It has been said that the Department of Homeland
Security*s personnel system may become the future human resource model for
the federal government. Today the Secretary of Defense explained his
vision for the personnel system for the civilian workforce, which in some
instances goes well beyond the Homeland Security proposal. I know that the
Department of Defense has had a great deal of success with their
demonstration projects, but do you think we should wait until the Homeland
Security system is fully established before we give broad authority to the
Defense Department?

As we noted in our high- risk series, modern, effective, and credible
human capital strategies will be essential in order to maximize
performance and assure accountability of the government for the benefit of
the American people. 2 As the employer of almost 700,000 civilians, in no
place is a modernized human capital system more critical than DOD.
However, as I have often noted, such a system should not be implemented
without an adequate human capital infrastructure and safeguards.

Although we do not believe that DOD should wait for the full
implementation of the new human capital system at the Department of
Homeland Security (DHS), which could take several years, we do think that
there are important lessons that can be learned from how DHS is developing
its new personnel system. For example, DHS has implemented an approach
that includes a design team of employees from DHS, the Office of Personnel
Management (OPM), and major labor unions. To further involve employees,
DHS has conducted a series of town hall meetings around the country and
held focus groups to further learn of employees* views and comments.
According to DHS, draft regulations for the new personnel system will be
issued this fall, final regulations by early 2004, and implementation to
begin at that point. DOD, as any organization seeking to transform, needs
to ensure that employees are involved in order to obtain their ideas and
gain adequate *buy- in* for any related transformational efforts.

3. Mr. Walker, in your testimony before the House Government Reform
Committee and my Subcommittee, you expressed reservations with DOD*s
preparedness to implement a pay for performance system. You have observed
that the Department does not have a credible and verifiable performance
management system. S. 1166 seeks to address that concern by establishing
criteria for a performance management system. Please comment on that
portion of the bill.

2 U. S. General Accounting Office, High- Risk Series: Strategic Human
Capital Management, GAO- 03- 120 (Washington D. C.: January 2003).

GAO- 03- 965R DOD Human Capital Reform Page 3 We are pleased that both the
House of Representatives* version of the proposed

National Defense Authorization Act for Fiscal Year 2004 and the proposed
National Security Personnel System Act contain statutory safeguards and
standards along the lines that we have been suggesting to help ensure that
DOD*s pay for performance efforts are fair to employees and improve both
individual and organizational performance.

The statutory standards described in the National Security Personnel
System Act proposal are intended to help ensure a fair, credible, and
equitable system that results in meaningful distinctions in individual
employee performance; employee involvement in the design and
implementation of the system; and effective transparency and
accountability measures, including appropriate independent reasonableness
reviews, internal grievance procedures, internal assessments, and employee
surveys. In our reviews of agencies* performance management systems-----
as in our own experience with designing and implementing performance-
based pay r ef or m f or our sel ves at GAO------ we have found that these
safeguards are key to maximizing the chances of success and minimizing the
risk of failure and abuse.

The proposed National Security Personnel System Act also takes the
essential first step in requiring DOD to link the performance management
system to the agency*s strategic plan. Building on this, we suggest that
DOD also be required to link its performance management system to program
and performance goals and desired outcomes. Linking the performance
management system to related goals and desired outcomes helps the
organization ensure that its efforts are properly aligned and reinforces
the line of sight between individual performance and organizational
success so that an individual can see how her/ his daily responsibilities
contribute to results and outcomes.

Questions from Senator Carper 1. In your written testimony, you say it
would be preferable to employ a governmentwide approach to address human
capital issues in the future. Of the issues addressed in S. 1166 and the
Defense Department proposal, which do you believe would be best handled
using a governmentwide approach? As you point out, I have testified that
Congress should consider both governmentwide

and selected agency changes to address the pressing human capital issues
confronting the federal government. Agency- specific human capital reforms
should be enacted to the extent that the problems being addressed and the
solutions offered are specific to a particular agency (e. g., military
personnel reforms for DOD). In addition, targeted reforms should be
considered in situations where additional testing or piloting is needed
for fundamental governmentwide reform.

In our view, it would be preferable to employ a governmentwide approach to
address certain flexibilities that have broad- based application and
serious potential implications for the civil service system, in general,
and OPM, in particular. We believe that several of the reforms that DOD is
proposing fall into this category. Some examples include broad- banding,
pay for performance, reemployment, and pension offset waivers. In these
situations, it may be prudent and preferable for

GAO- 03- 965R DOD Human Capital Reform Page 4 Congress to provide such
authorities on a governmentwide basis and in a manner that

assures that a sufficient personnel infrastructure and appropriate
safeguards are in place before an agency implements the new authorities.
Importantly, employing this approach is not intended to delay action on
DOD*s or any other individual agency*s efforts but rather to accelerate
needed human capital reform throughout the federal government in a manner
that ensures reasonable consistency on key principles within the overall
civilian workforce. This approach also would help to maintain a level
playing field among federal agencies in competing for talent.

2. Many of the proposals made by the Defense Department have been made in
the past by other departments and agencies to address longstanding,
governmentwide human capital problems. Every department and agency, I*m
sure, can claim to have difficulty, for example in recruiting and
retaining qualified personnel to replace retirees, in hiring individuals
quickly or in finding ways to reward employees for excellent performance.
In your view, is what the Defense Department is seeking narrowly tailored
to meet department- specific needs? Has the Defense Department provided
sufficient justification for the kind of personnel authority they are
seeking?

The authority DOD is seeking is not directly tailored to meet department-
specific needs. In addition, DOD has not provided a written justification
for much of its proposal. Nevertheless, DOD does need certain additional
human capital flexibilities in order to facilitate its overall
transformation effort.

Secretary Rumsfeld and the rest of DOD*s leadership are clearly committed
to transforming how DOD does business. Based on our experience, while
DOD*s leadership has the intent and the ability to transform the
department, the needed institutional infrastructure is not in place in a
vast majority of DOD organizations. Our work looking at DOD*s strategic
human capital planning efforts and looking across the federal government
at the use of human capital flexibilities and related human capital
efforts underscores the critical steps that DOD needs to take to properly
develop and effectively implement any new personnel authorities. 3 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 authorities are not implemented properly by the
respective department or agency.

DOD has noted that its new personnel system will be based on the work done
by DOD*s Human Resources Best Practices Task Force. The Task Force
reviewed both 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 an April 2, 2003, Federal Register notice asking for
comment on DOD*s plan to integrate all of its current science and

3 See, for example, 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); Human Capital: Effective Use of
Flexibilities Can Assist Agencies in Managing Their Workforces, GAO- 03- 2
(Washington, D. C.: Dec. 6, 2002); and Defense Logistics: Actions Needed
to Overcome Capability Gaps in the Public Depot System, GAO- 02- 105
(Washington, D. C.: Oct. 12, 2001).

GAO- 03- 965R DOD Human Capital Reform Page 5 technology reinvention
laboratory demonstration projects under a single human

capital framework consistent with the best practices DOD identified.
Finally, as I noted in my statement before the Committee, the relevant
sections of the House of Representatives* version of the proposed National
Defense Authorization Act for Fiscal Year 2004 and Chairman Collins,
Senator Levin, Senator Voinovich, and Senator Sununu*s National Security
Personnel System Act, in our view, contain a number of important
improvements over the initial DOD legislative proposal. - - - - -

We are providing copies of this letter to the Ranking Minority Member,
Senate Committee on Governmental Affairs; the Chairman and Ranking
Minority Member, Senate Committee on Governmental Affairs, Subcommittee on
Oversight of Government Management, the Federal Workforce and the District
of Columbia; the Chairman and Ranking Minority Member, Senate Committee on
Governmental Affairs, Subcommittee on Financial Management, the Budget,
and International Security; and the Honorable Thomas R. Carper. For
additional information on our work on federal agency transformation
efforts and strategic human capital management, please contact me on (202)
512- 5500 or J. Christopher Mihm, Director, Strategic Issues, on (202)
512- 6806 or at mihmj@ gao. gov.

Sincerely, David M. Walker Comptroller General of the United States

(450235)

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