Posthearing Questions Related to Assessing Progress in Human	 
Capital Management (03-SEP-04, GAO-04-1072R).			 
                                                                 
On July 20, 2004, GAO before your Subcommittee on Oversight of	 
Government Management, the Federal Workforce, and the District of
Columbia, Senate Committee on Governmental Affairs on "Building  
the 21st Century Federal Workforce: Assessing Progress in Human  
Capital Management." This letter responds to committee members'  
request that GAO provide answers to follow-up questions.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-1072R					        
    ACCNO:   A12192						        
  TITLE:     Posthearing Questions Related to Assessing Progress in   
Human Capital Management					 
     DATE:   09/03/2004 
  SUBJECT:   Federal agencies					 
	     Hiring policies					 
	     Human resources utilization			 
	     Labor force					 
	     Personnel evaluation				 
	     Personnel management				 
	     Best practices					 
	     Best practices reviews				 
	     Human capital					 
	     Employee retention 				 
	     Performance-based pay				 

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GAO-04-1072R

United States Government Accountability Office Washington, DC 20548

September 3, 2004

The Honorable George V. Voinovich

Chairman

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

Committee on Governmental Affairs

United States Senate

Subject: Posthearing Questions Related to Assessing Progress in Human
Capital Management

Dear Chairman Voinovich:

On July 20, 2004, I testified before your Subcommittee on "Building the
21st Century Federal Workforce: Assessing Progress in Human Capital
Management."1 This letter responds to your request that I provide answers
to follow-up questions from you, Senator Akaka, and Senator Lautenberg.
The questions and responses follow.

Questions from Senator Voinovich

1. 	Congress and the President just authorized additional human capital
flexibilities to assist GAO to attract and retain a high-performing work
force. What lessons can other agencies learn from GAO's approach to
building the case for these flexibilities?

A key reason GAO has sought additional human capital flexibilities is that
while our people account for about 80 percent of our costs, they
constitute 100 percent of our real assets. Without excellent human capital
management, we run the risk of being unable to deliver what Congress and
the nation expects of us. GAO's approach to building the case for
flexibilities is appropriate for the rest of government. We have
emphasized that in addressing their human capital challenges, agencies
should first identify and make use of the flexibilities already available
under existing laws and regulations and seek additional flexibilities only
when necessary and based on sound business cases.2 We also have committed
to an implementation approach that is based on employee involvement,
transparency, clearly defined criteria, and monitoring and evaluation.

1 GAO, Human Capital: Building on the Current Momentum to Transform the
Federal Government,
GAO-04-976T (Washington, D.C.: July 20, 2004).
2 GAO, Managing for Results: Using Strategic Human Capital Management to
Drive
Transformational Change, GAO-02-940T (Washington, D.C.: July 15, 2002).

Leading by example, GAO based its recent requests for additional
flexibilities on demonstrated business cases. In fiscal year 1999, we
completed a self-assessment that profiled our human capital workforce and
identified a number of serious challenges, including significant issues
involving succession planning and imbalances in our structure, shape, and
skills. To help address these challenges, we received from Congress
several flexibilities, such as a 3-year authority to offer voluntary early
retirement opportunities and voluntary separation payments, in the GAO
Personnel Flexibilities Act of 2000. Collectively, these and other
flexibilities were contributing factors in helping us begin to address
skill gaps and other succession concerns, and hire more staff at the entry
level.3 To help us continue to reshape the organization, we sought and
received additional human capital flexibilities in GAO's recently enacted
Human Capital Reform Act of 2004 (Human Capital II). In addition to
providing GAO with permanent authority to offer early outs and buyouts,
the act authorized additional flexibilities in the areas of annual pay
adjustments, pay retention, and relocation benefits. We recognize that our
transformation effort is a work in progress. Nevertheless, we will
continue to share our lessons and experiences with others, and provide a
range of tools and methodologies to "help others help themselves" to
address their human capital challenges.

2. 	GAO identified the need for agencies to develop strategies to train
its human resources workforce. Do you see the Chief Human Capital
Officers' Council playing a significant role in addressing this need?

We have reported that educating agency managers and employees-including
human resources professionals-on the availability and use of human capital
flexibilities is a key practice to ensure they are used most effectively.4
The Chief Human Capital Officers (CHCO) Council can play a key role in
helping agencies develop strategies to train their human resources
workforce. The council is to provide leadership, information, and advice
to agencies as they develop and implement their human capital strategies
and policies, as well as serve as a coordinating mechanism across the
agencies. We have found that interagency councils, including the Chief
Financial Officer and Chief Information Officer councils, have emerged as
important leadership strategies to foster communication among agencies
about key policies and practices, build a commitment to institutionalize
them across the executive branch, and ensure consistent follow-through on
this implementation.5

In May 2003, we recommended that the Office of Personnel Management (OPM)
work with and through the new CHCO Council to more thoroughly research,
compile, and analyze information on the effective and innovative use of
human capital flexibilities and more fully serve as a clearinghouse in
sharing and distributing information on them.6 We noted that sharing
information about when, where, and how the broad range of flexibilities is
being used, and should be used, could help agencies meet their human
capital challenges. To

3 GAO, GAO: Transformation, Challenges, and Opportunities, GAO-03-1167T
(Washington, D.C.: Sept.
16, 2003).
4 GAO, Human Capital: Effective Use of Flexibilities Can Assist Agencies
in Managing Their
Workforces, GAO-03-2 (Washington, D.C.: Dec. 6, 2002).
5 GAO, Government Management: Observations on OMB's Management Leadership
Efforts, GAO/T-
GGD-AIMD-99-65 (Washington, D.C.: Feb. 4, 1999).
6 GAO, Human Capital: OPM Can Better Assist Agencies in Using Personnel
Flexibilities, GAO-03
428 (Washington, D.C.: May 9, 2003).

provide this information and help educate agencies, OPM created the Chief
Human Capital Officers Academy as part of the Council to educate the
Officers about current human capital management issues and available
flexibilities. The Academy has scheduled monthly training and discussion
sessions with CHCOs throughout 2004. For example, in June 2004 OPM hosted
a symposium on these flexibilities for 230 human resources officials from
over 30 federal agencies. These types of coordination and communication
efforts can significantly help agencies train their human resources
workforces.

3.	OPM has asked for the authority to design new systems for federal law
enforcement retirement, classification, and pay. OPM proposes to do so in
consultation with employing agencies and with the concurrence of the
Attorney General. What are your thoughts on this recommendation?

While we have not done a recent comprehensive review of federal law
enforcement retirement, classification, and pay, our work and the work of
others continues to show that agencies need and want greater leadership
from OPM in helping them address their human capital challenges.7 OPM
recognizes the importance of exerting a stronger and more visible
leadership role. In addition, obtaining the concurrence of the Attorney
General, as well as other stakeholders in federal law enforcement, is
critical when developing such systems to help improve employees'
confidence and belief in the fairness of the system. For example, our work
shows that when reforming their performance management systems, public
sector organizations in other countries consulted a wide range of
employees and stakeholders early in the process, obtained direct feedback
from them, and engaged employee unions or associations.

We have observed that we are fast approaching the point where "standard
governmentwide" human capital policies and processes are neither standard
nor governmentwide. We believe that human capital reform should avoid
further fragmentation within the civil service, ensure reasonable
consistency within the overall civilian workforce, and help maintain a
reasonably level playing field among federal agencies in competing for
talent.

Questions from Senator Akaka

1. 	Which agencies have figured out how to optimize the use of workforce
flexibilities to improve the federal hiring process and of those agencies,
which ones use their agency specific authority instead of flexibilities
available government-wide?

While we have not taken an inventory of all agencies' hiring practices, we
reviewed the activities of five agencies: the U.S. Geological Survey, the
U.S. Census Bureau, and the Department of the Army, as well as the
Agricultural Research Service (ARS) and the Forest Service (FS), both of
which are in the Department of Agriculture.8 We selected these agencies
because, according to human resources directors and experts, they had
taken actions to improve their hiring practices. We generally found that
the changes these agencies implemented-including, for example, improving
job announcements to make them more informative and easier to read, and
automating hiring processes to reduce hiring time,

7 GAO, Major Management Challenges and Program Risks: Office of Personnel
Management, GAO
03-115 (Washington, D.C.: January 2003).
8 GAO, Human Capital: Opportunities to Improve Executive Agencies' Hiring
Processes, GAO-03-450
(Washington, D.C.: May 30, 2003).

increase the number of job applicants, and better serve internal and
external customers-are actions that all agencies have the authority to
implement.

ARS and FS did have one unique authority, under a pilot project
implemented from 1990 to 1998, to use the category rating process. As you
know, this alternative rating and selection procedure can provide agency
managers with a larger pool of qualified job candidates from which to
select than numerical ranking and the "rule of three," while also
protecting veterans' preference. Because evaluations of the pilots showed
the category rating process to be effective, both ARS and FS received
permanent legislative authority to use this flexibility beginning in
October 1998,9 and Congress extended this authority governmentwide in the
Homeland Security Act of 2002.10

2. 	In 2002, GAO reported that some of the most effective flexibilities
agencies can use to manage their workforce are work-life programs, such as
alternative work schedules, child-care, and transit subsidies. Do you know
of any new work-life programs that are being used in the private sector
that could benefit the Federal government?

We have not conducted work with the private sector to determine whether
companies are using any new work-life programs that federal agencies could
adopt. As you note, we reported that according to more than 200 managers,
supervisors, human resources officials, and union representatives from
across the federal government, work-life programs-such as alternative work
schedules, child care assistance, and transit subsidies-were among the
flexibilities deemed most effective in helping agencies to manage their
workforce.11 More recently, we have reported on telework opportunities as
being a key flexibility from the perspective of employees and a critical
management tool for coping with potential disruptions in the workplace,
including terrorism.12

We also reported that agencies could make more frequent and effective use
of the work-life programs and other flexibilities already available to
them. We determined that agencies sometimes overlook the effectiveness of
these tools in recruiting, retaining, and motivating staff.13 In addition,
we identified significant barriers to their use, including:

o  	agencies' weak strategic human capital planning and inadequate funding
due to competing priorities;

o  managers' and supervisors' lack of awareness and knowledge of the
flexibilities; and

o  	managers' and supervisors' belief that approval processes to use
specific flexibilities are often burdensome and time-consuming.

Generally speaking, as a first priority, it is important for agencies to
assess and determine which human capital flexibilities are the most
appropriate for managing their workforces.

9 Section 749 of Pub. L. No. 105-277 (Oct. 21, 1998).
10 Section 1312 of Pub. L. No. 107-296 (Nov. 25, 2002).
11 GAO-03-2.
12 GAO, Human Capital: Key Practices to Increasing Federal Telework,
GAO-04-950T (Washington,
D.C.: July 8, 2004).
13 GAO, Securities and Exchange Commission: Human Capital Challenges
Require Management
Attention, GAO-01-947 (Washington, D.C.: Sept. 17, 2001).

Then, they need to take concerted actions to overcome any barriers and
implement these flexibilities effectively.

Questions from Senator Lautenberg

1. 	How does the GAO plan to use its flexibilities for adjusting the rate
of basic pay and enhanced annual leave for senior staff? How will these
flexibilities be implemented and monitored to assure they are not abused
by managers?

We are studying the implementation of the pay adjustment provision that
would allow us to determine the amount of the current annual
across-the-board pay adjustment. This provision is designed, among other
reasons, to afford additional flexibility to the Comptroller General to
increase the funding for performance-based compensation. GAO has recently
let a contract to help inform our decisionmaking on performance-based
compensation and other matters.

Leading by example, we have adopted safeguards that help to ensure that
our performancebased pay program is fair, effective, and credible:

o  	assure that the performance management system links to the strategic
plan, related goals, and desired outcomes and results in meaningful
distinctions in individual employee performance;

o  	involve employees, their representatives, and other stakeholders in
the design of the system;

o  	assure that certain predecisional internal safeguards exist to help
achieve the consistency, equity, nondiscrimination, and nonpoliticization
of the performance management process and resulting pay process; and

o  	assure reasonable transparency and appropriate accountability
mechanisms in connection with the results of the performance management
system.

As you know, GAO also received the authority to put key officers and
employees with less than 3 years of federal experience in the 6-hour leave
category. GAO is drafting regulations, which will then be shared with
managing directors and our Employee Advisory Council prior to initiating
the formal notice and comment period for all employees.

GAO has reported that a key practice for effective use of human capital
flexibilities is to build transparency and accountability into the
system.14 The consistent application of policies and procedures helps to
lessen employee fears because program criteria are well defined,
documented, transparent, and applied the same way in similar situations.
We plan to use this same approach as we implement and monitor this and
other flexibilities we recently received from Congress.

14 GAO-03-2.

2. 	GAO's written statement notes that agency human capital offices often
use "alternative service delivery (ASD)" in lieu of internal staff. Is ASD
a euphemism for contracted-out work?

Our work noted that selected agencies are using a variety of alternative
service delivery options, in addition to contracting with the private
sector, to address a wide range of human capital activities.15 ASD is the
use of other than internal staff to provide a service or to deliver a
product. Public sector providers are one of the primary ASD options
agencies are using to accomplish traditional human capital service
delivery, such as employee assistance programs, as well as training and
advisory services. For example, some agencies enter into reimbursable
agreements with other agencies that provide the necessary services.
Another ASD option is to enter into partnerships-voluntary alliances that
do not necessarily involve the exchange of funds. For example, the Census
Bureau's Partnership and Data Services program established partnerships
with national, state, and local organizations to recruit census takers
during Census 2000. These examples indicate that informing agencies about
effective ways ASD has been used to date can encourage human capital
offices to continue thinking more broadly than just contracting with the
private sector to cost-effectively obtain a range of needed services.

Use of ASD by at least one agency included functions like classification
appeals and administrative investigations. Does GAO believe these are
appropriate functions for contractor personnel? Where should the line be
drawn between what are and what aren't inherent government functions in
human capital work?

While we did not take a position in our report on the appropriateness of
using ASD for various human capital activities, we do think there are
opportunities to use contractor personnel to conduct at least some of the
activities involved in functions such as classification appeals and
administrative investigations. For example, contractors might conduct
research or interviews to support the investigations. However, it is more
appropriate to have federal employees conduct other activities involved in
these functions, such as the final appeals determination.

In terms of defining what are inherently governmental human capital
functions that should not be performed by contractor personnel, the April
2002 final report of the Commercial Activities Panel, which was chaired by
GAO and tasked with determining ways to improve the government's sourcing
decisions, offers some guidance.16 The panel recognized there is
widespread consensus that certain functions should be performed by federal
workers, but also acknowledged the difficulty in precisely defining what
should be considered "inherently governmental." The panel considered
guidance from the Office of Management and Budget (OMB) that provides
agencies a framework for defining these functions,17 as well as
information obtained under the Federal Activities Inventory Reform Act on
commercial work being performed by the government. The group then
concluded that federal employees

15 GAO, Human Capital: Selected Agencies' Use of Alternative Service
Delivery Options for Human
Capital Activities, GAO-04-679 (Washington, D.C.: June 25, 2004).
16 Improving the Sourcing Decisions of the Government, Commercial
Activities Panel, April 30, 2002.
The panel, convened by GAO, consisted of representatives from agencies,
federal labor unions, and
private industry, as well as other individuals with expertise in the area.
17 Office of Management and Budget Directive 92-1.

should conduct certain activities, such as establishing policy or
regulations, enforcing these regulations, and adjudicating disputes, among
other things.

In addition, the National Academy of Public Administration offers a more
specific definition of inherently governmental human capital functions,
which includes:18

o  	Decision making on matters concerning human capital. The final
determination on selecting, hiring, promoting, rewarding, punishing, and
removing employees must be done by federal employees. A line manager may
exercise final determinations with human resources, in house or
outsourced, serving as a consultant to the responsible official.

o  	Human capital policy determination at the agency level. Overall human
capital policy must be made by agency staff and reflect federal law and
regulation as well as agency values and priorities.

o  	Setting performance standards. Agency managers must enact standards
and make final judgment as to compliance.

o  	Contract management and oversight. Qualified and knowledgeable human
capital professionals must be used to ensure that outsourced providers
deliver high-quality service at a reasonable cost.

3. 	Is GAO consulting its employee organizations in implementing its new
human capital tools and flexibilities?

The Comptroller General and other GAO executives engaged in a broad range
of outreach and consultation activities with GAO staff on the Human
Capital II legislation as it was being developed. GAO will continue to
solicit input from employees and incorporate their views as appropriate as
part of the implementation process.

4. 	I believe there may be a federal agency that has an employee
performance evaluation system with only two ratings: pass or fail. The
same agency has an employee award system that is totally delinked from
employee performance evaluations. Doesn't such a system:

o  	Create a large incentive for favoritism in making awards, since they
are not linked to any objective performance measure?

o  Create a disincentive to quality work by employees?

o  Limit managers' ability to recognize and reward outstanding employees?

Instead of allowing each agency to create its own performance management
system, should the federal government return to a uniform multi-level
(e.g., 5) performance evaluation system?

While agencies need to develop and effectively implement the human capital
approaches that best meet their needs, resources, context, and
authorities, we are concerned that a pass/fail system does not provide
enough meaningful information and dispersion in ratings to recognize and
reward top performance, help everyone attain their maximum potential, and

18 National Academy of Public Administration, Alternative Service
Delivery: A Viable Strategy for Federal Government Human Resources
Management (Washington, D.C.: November 1997).

deal with poor performers. Furthermore, we identified a set of practices
leading public sector organizations both here and abroad have used for
effective performance management, and among these practices is to make
meaningful distinctions in performance.19 We believe that an agency can
use this set of practices to demonstrate that it has a performance
management system in place that provides the objective and fact-based
information that is needed to reward top performers and the necessary
information and documentation to deal with poor performers.

As for a uniform performance management system across agencies, OPM
recognizes that agencies' approaches will depend on their specific
situations. For example, agencies must have, at least four, but no more
than five rating levels, among other things, in designing their new
performance-based senior executive performance management systems under
the July 2004 OPM interim final regulations. Once OPM certifies and OMB
concurs that their performance managements systems, as designed and
applied, make meaningful distinctions based on relative performance,
agencies can then raise the pay cap for their senior executives.20 In
addition, we reported that selected personnel demonstration projects took
different approaches in translating individual employee performance
ratings into pay increases and awards.21 These different approaches were
intended to enhance the success of the pay-for-performance systems because
the systems were designed and implemented to meet the demonstration
projects' unique cultural and organizational needs.

For additional information on our work on strategic human capital
management, please contact me or Eileen Larence on (202) 512-6806 or at
[email protected] or [email protected].

Sincerely yours,

J. Christopher Mihm Managing Director, Strategic Issues

(450357)

19 GAO, Results-Oriented Cultures: Creating a Clear Linkage between
Individual Performance and Organizational Success, GAO-03-488 (Washington,
D.C.: Mar. 14, 2003). 20 For more information, see GAO, Human Capital:
Senior Executive Performance Management Can Be Significantly Strengthened
to Achieve Results, GAO-04-614 (Washington, D.C.: May 26, 2004). 21 GAO,
Human Capital: Implementing Pay for Performance at Selected Personnel
Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23, 2004).

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