Human Capital: Building on the Current Momentum to Transform the
Federal Government (20-JUL-04, GAO-04-976T).
The federal government is in a period of profound transition,
forcing agencies to transform their cultures to enhance
performance, ensure accountability, and position the nation for
the future. Strategic human capital management is at the center
of this government transformation. Federal agencies will need the
most effective human capital systems to succeed in their
transformation efforts. At the request of the Subcommittee on
Oversight of Government Management, the Federal Workforce, and
the District of Columbia, Senate Committee on Governmental
Affairs, this statement summarizes GAO's findings to date on
agencies' use of human capital flexibilities, provides an
overview of the most relevant human capital management
developments, and discusses GAO's recently enacted human capital
flexibilities.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-976T
ACCNO: A11021
TITLE: Human Capital: Building on the Current Momentum to
Transform the Federal Government
DATE: 07/20/2004
SUBJECT: Compensation
Education or training
Federal agencies
Federal employees
Hiring policies
Human resources utilization
Labor force
Performance measures
Personnel management
Strategic planning
Human capital
******************************************************************
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GAO-04-976T
United States Government Accountability Office
GAO Testimony
Subcommittee on Oversight of Government Management, the Federal Workforce,
and the District of Columbia, Committee on Governmental Affairs, U.S.
Senate
For Release on Delivery
Expected at 9:00 a.m. EDT HUMAN CAPITAL
Tuesday, July 20, 2004
Building on the Current Momentum to Transform the Federal Government
Statement of J. Christopher Mihm Managing Director, Strategic Issues
A
GAO-04-976T
Highlights of GAO-04-976T, a testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Committee on Governmental Affairs, U.S. Senate
The federal government is in a period of profound transition, forcing
agencies to transform their cultures to enhance performance, ensure
accountability, and position the nation for the future. Strategic human
capital management is the centerpiece of this government transformation.
Federal agencies will need the most effective human capital systems to
succeed in their transformation efforts.
At the request of the subcommittee, this statement summarizes GAO's
findings to date on agencies' use of human capital flexibilities, provides
an overview of the most relevant human capital management efforts, and
discusses GAO's recently enacted human capital flexibilities.
www.gao.gov/cgi-bin/getrpt?GAO-04-976T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact J. Christopher Mihm at (202)
512-6806 or [email protected].
July 20, 2004
HUMAN CAPITAL
Building on the Current Momentum to Transform the Federal Government
While more progress in addressing human capital challenges has been made
in the last few years than in the last 20 years, much more needs to be
done to ensure that agencies' cultures are results oriented, customer
focused, and collaborative in nature. For example, an essential element in
acquiring, developing, and retaining high-quality federal employees is
agencies' effective use of flexibilities. Congress provided governmentwide
hiring flexibilities-category rating and direct hire-but agencies appear
to be making limited use of them. The agencies and the Office of Personnel
Management can use the Chief Human Capital Officers Council as a vehicle
to help address crosscutting human capital challenges, such as hiring.
The following efforts to foster a strategic approach to human capital
management are under way.
o Conducting Strategic Workforce Planning: In the wake of extensive
downsizing during the early 1990s, agencies are experiencing significant
challenges to deploying the right skills, in the right places, at the
right time. Succession planning and management is particularly important
given the demographic realities and transformation challenges agencies
face.
o Strengthening Federal Employee Training and Development: Officials at
selected agencies emphasized that they are transitioning to more formal
and comprehensive planning approaches to assess skill and competency
requirements and identify related training and development needs-primarily
as part of broader efforts to incorporate workforce planning into ongoing
strategic planning and the budgeting process.
o Implementing Pay for Performance: Emphasizing performance-based pay is
critical at all levels of government. GAO strongly supports the need to
expand pay for performance in the federal government. Recently, Congress
has sought to modernize senior executive performance management systems.
However, data show that more work is needed to make meaningful
distinctions based on relative performance. In addition, the experiences
of several personnel demonstration projects show that linking pay to
performance is very much a work in progress.
o Creating Strategic Human Capital Offices: Congress has recognized the
need for human capital offices that contribute to achieving missions and
goals. Some agencies are shifting the focus of their human capital offices
from primarily compliance to consulting activities for line managers.
Agencies are also using alternative service delivery-the use of other than
internal staff to provide a service or to deliver a product- to free staff
to focus on core activities.
GAO's has begun to implement some of its recently enacted flexibilities
that are collectively designed to help attract, retain, motivate, and
reward a top quality and high-performing workforce.
Chairman Voinovich, Senator Durbin, and Members of the Subcommittee:
I am pleased to be here today to discuss the progress to date in
addressing the federal government's pressing human capital challenges. As
you know, the federal government is in a period of profound transition,
which is forcing agencies to transform their cultures to enhance
performance, ensure accountability, and position the nation for the
future. Strategic human capital management is the centerpiece of
government transformation.
Chairman Voinovich, in your December 2000 report to the President, you ask
"Will the federal government invest the resources necessary to compete for
talent in today's information workplace and become a worldclass provider
of services?"1 You continue "Successfully addressing the human capital
crisis...will not come about quickly nor easily. No single piece of
legislation or executive order can accomplish these goals. For this effort
to be successful, it must be embraced by Congress, career managers, and
the employees who are on the front lines... Without the sustained support
of all of the stakeholders, this effort will fall short."
Since then, and under the leadership of this subcommittee and others in
Congress, more progress in addressing human capital challenges has been
made than in the last 20 years. For example, Congress provided
governmentwide human capital flexibilities, such as direct hire authority,
the ability to use category rating in the hiring of applicants instead of
the "rule of three," and the creation of chief human capital officer
(CHCO) positions and a CHCO Council. In addition, individual agencies-most
recently, GAO, and earlier, the National Aeronautical and Space
Administration (NASA) and the Departments of Defense (DOD) and Homeland
Security (DHS)-received flexibilities intended to help them manage their
human capital strategically to achieve results. These are important and
positive developments.
Nevertheless, much more needs to be done to ensure that agencies' cultures
are results oriented, customer focused, and collaborative in nature. At
your request, my testimony today will (1) summarize our
1Senator George V. Voinovich, Report to the President: The Crisis in Human
Capital, Subcommittee on Oversight of Government Management,
Restructuring, and the District of Columbia of the Committee on
Governmental Affairs, United States Senate (Washington, D.C.: December
2000).
findings to date on agencies' use of human capital flexibilities, (2)
provide an overview of the most relevant human capital management efforts,
and (3) discuss GAO's recently enacted human capital flexibilities. My
comments are based on previously issued GAO reports that were developed in
accordance with generally accepted government auditing standards.
Agencies Must Build the Capability to Make Effective Use of Human Capital
Flexibilities
An essential element to acquiring, developing, and retaining high-quality
federal employees is agencies' effective use of human capital
flexibilities. These flexibilities represent the policies and practices
that an agency has the authority to implement in managing its workforce.
The insufficient and ineffective use of flexibilities can significantly
hinder the ability of federal agencies to recruit, hire, retain, and
manage their human capital. In December 2002, we reported that agencies
were often not maximizing their use of the human capital flexibilities
already available to them and we identified key practices that agencies
can implement to effectively use such flexibilities, as shown in figure
1.2
2U.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).
Figure 1: Key Practices for Effective Use of Human Capital Flexibilities
Plan strategically and make 0M Obtain agency leadership commitment
targeted investments 0M Determine agency workforce needs using
fact-based analysis 0M Develop strategies that employ appropriate
flexibilities to meet workforce needs 0M Make appropriate funding
available
Ensure stakeholder input in 0M Engage the human capital office developing
policies and 0M Engage agency managers and supervisors procedures 0M
Involve employees and unions
0M Use input to establish clear, documented, and transparent policies and
procedures
Educate managers and employees 0M Train human capital staff
on the availability and use of 0M Educate agency managers and supervisors
on existence and use of flexibilities
flexibilities 0M Inform employees of procedures and rights
Streamline and improve 0M Ascertain the source of existing requirements
administrative processes 0M Reevaluate administrative approval processes
for greater efficiency 0M Replicate proven successes of others
Build transparency and accountability 0M Delegate authority to use
flexibilities to appropriate levels within the agency into the system 0M
Hold managers and supervisors directly accountable
0M Apply policies and procedures consistently
Change the organizational 0M Ensure involvement of senior human capital
managers in key decision-making processes culture 0M Encourage greater
acceptance of prudent risk taking and organizational change
0M Recognize differences in individual job performance and competencies
Source: GAO.
We reported that agencies must take greater responsibility for maximizing
the efficiency and effectiveness of their individual hiring processes
within the current statutory and regulatory framework that Congress and
the Office of Personnel Management (OPM) have provided.
Specifically, in regard to the federal hiring process, we recommended that
OPM take additional actions to assist agencies in strengthening that
process.3 We subsequently reported that although Congress, OPM, and
agencies have all undertaken efforts to help improve the federal hiring
3U.S. General Accounting Office, Human Capital: Opportunities to Improve
Executive Agencies' Hiring Processes, GAO-03-450 (Washington, D.C.: May
30, 2003).
process, agencies appeared to be making limited use of the new hiring
flexibilities provided by Congress in 2002-category rating and direct
hire.4 In our survey of CHCO Council members, the most frequently cited
barriers that they said prevented or hindered their agencies from using or
making greater use of these hiring flexibilities included
o the lack of OPM guidance for using the flexibilities,
o the lack of agency policies and procedures for using the flexibilities,
o the lack of flexibility in OPM rules and regulations, and
o concern about possible inconsistencies in the implementation of the
flexibilities within the department or agency.
Since the survey, OPM has taken a number of important actions to assist
agencies in their use of hiring flexibilities. For example, OPM issued
final regulations on the use of category rating and direct-hire authority,
providing some clarification in response to various comments it had
received in interim regulation. Also, OPM conducted a training symposium
to provide federal agencies with further instruction and information on
ways to improve the quality and speed of the hiring process.
To address the federal government's crosscutting strategic human capital
challenges, such as the hiring process, we have testified that an
effective and strategic CHCO Council is vital.5 As stated in its charter,
the Council's purposes include (1) advising OPM, the Office of Management
and Budget (OMB), and agency leaders on human capital strategies and
policies, as well as on the assessment of human capital management in
federal agencies; (2) informing and coordinating the activities of its
member agencies on such matters as modernization of human resources
systems; and (3) providing leadership in identifying and addressing the
needs of the government's human capital community.
4U.S. Government Accountability Office, Human Capital: Increasing
Agencies' Use of New Hiring Flexibilities, GAO-04-959T (Washington, D.C.:
July 13, 2004); Human Capital: Additional Collaboration Between OPM and
Agencies Is Key to Improved Federal Hiring, GAO-04-797 (Washington, D.C.:
June 7, 2004); and Human Capital: Status of Efforts to Improve Federal
Hiring, GAO-04-796T (Washington, D.C.: June 7, 2004).
5U.S. General Accounting Office, Human Capital: Observations on Agencies'
Implementation of the Chief Human Capital Officers Act, GAO-04-800T
(Washington, D.C.: May 18, 2004).
We have reported that interagency councils, such as the Chief Financial
Officers' and Chief Information Officers' councils, have emerged as
important leadership strategies in both developing policies that are
sensitive to implementation concerns and gaining consensus and consistent
follow-through within the executive branch.6 The CHCO Council can fulfill
an equally important role. It has established subcommittees to address and
recommend changes for key areas identified by the Council's leadership as
critical to the success of strategic human capital management. The
subcommittees are examining their areas and developing recommendations for
review by the executive committee and, subsequently, the Council. We
understand that three subcommittees- hiring process, leadership
development and succession planning, and employee conduct and poor
performers-have submitted their first reports for review by the executive
committee. However, these reports had not been released as of July 13,
2004.
Efforts to Foster a Strategic Approach to Human Capital Management Are Under
Way
A little over a year ago, in a joint hearing before your subcommittee and
that of Chairwoman Davis, we testified that federal human capital
strategies are not yet appropriately constituted to meet current and
emerging challenges or to drive the needed transformation across the
federal government.7 The basic problem has been the long-standing lack of
a consistent strategic approach to marshaling, managing, and maintaining
the human capital needed to maximize government performance and assure its
accountability. At your request and others in Congress, we have undertaken
a large body of work since then on relevant human capital management
efforts that are under way. Our summary of the major themes emerging from
that work follow.
Conducting Strategic In the wake of extensive downsizing during the early
1990s, done largely
Workforce Planning without sufficient consideration of the strategic
consequences, agencies are experiencing significant challenges to
deploying the right skills, in the right places, at the right time.
Agencies are also facing a growing number of employees who are eligible
for retirement and are finding it difficult to
6U.S. General Accounting Office, Government Management: Observations on
OMB's Management Leadership Efforts, GAO/T-GGD/AIMD-99-65 (Washington,
D.C.: Feb. 4, 1999).
7U.S. General Accounting Office, Human Capital: Building on the Current
Momentum to Address High-Risk Issues, GAO-03-637T (Washington, D.C.: Apr.
8, 2003).
fill certain mission-critical jobs, a situation that could significantly
drain agencies' institutional knowledge.
Strategic workforce planning addresses two critical needs: (1) aligning an
organization's human capital program with its current and emerging mission
and programmatic goals and (2) developing long-term strategies for
acquiring, developing, and retaining staff to achieve programmatic goals.8
Existing strategic workforce planning tools and models and our own work
suggest that there are certain principles that such a process should
address irrespective of the specific agency context in which planning is
done, as shown in figure 2.
Figure 2: Principles of the Strategic Workforce Planning Process
o Involve top management, employees, and other stakeholders in
developing, communicating, and implementing the strategic workforce plan.
o Determine the critical skills and competencies that will be needed to
achieve current and future programmatic results.
o Develop strategies that are tailored to address gaps in number,
deployment, and alignment of human capital approaches for enabling and
sustaining the contributions of all critical skills and competencies.
o Build the capability needed to address administrative, educational, and
other requirements important to support workforce strategies.
o Monitor and evaluate the agency's progress toward its human capital
goals and the contribution that human capital results have made toward
achieving programmatic goals.
Source: GAO.
For example, the achievement of DOD's mission is dependent in large part
on the skills and expertise of its civilian workforce. We recently
reported that DOD's future strategic workforce plans may not result in
workforces that possess the critical skills and competencies needed.9
Among other things, DOD and the components do not know what competencies
their staff need to do their work now and in the future and what type of
recruitment, retention, and training and professional development
8U.S. General Accounting Office, Human Capital: Key Principles for
Effective Strategic Workforce Planning, GAO-04-39 (Washington, D.C.: Dec.
11, 2003).
9U.S. General Accounting Office, DOD Civilian Personnel: Comprehensive
Strategic Workforce Plans Needed, GAO-04-753 (Washington, D.C.: June 30,
2004).
workforce strategies should be developed and implemented to meet future
organizational goals. It is questionable whether DOD's implementation of
its new personnel reforms will result in the maximum effectiveness and
value because DOD has not developed comprehensive strategic workforce
plans that identify future civilian workforce needs.
Moving beyond a "replacement" approach, which focuses on identifying
particular individuals as possible successors for specific top-ranking
positions, succession planning and management are particularly important
given the demographic realities and transformation challenges agencies
face. Leading organizations engage in broad, integrated succession
planning and management efforts that focus on strengthening both current
and future organizational capacity. As part of this approach, these
organizations identify, develop, and select successors who are the right
people, with the rights skills, at the right time for leadership and other
key positions. We identified specific succession planning and management
practices that agencies in Australia, Canada, New Zealand, and the United
Kingdom are implementing that reflect this broader focus on building
organizational capacity (see fig. 3).10
Figure 3: Selected Practices Used by Agencies in Other Countries to Manage
Succession
o Receive active support of top leadership.
o Link to strategic planning.
o Identify talent from multiple organizational levels, early in careers,
or with critical skills.
o Emphasize developmental assignments in addition to formal training.
o Address specific human capital challenges, such as diversity,
leadership capacity, and retention.
o Facilitate broader transformation efforts.
Source: GAO.
At your request and the request of Chairwoman Davis, we are now evaluating
selected federal agencies' succession planning and management
10U.S. General Accounting Office, Human Capital: Insights for U.S.
Agencies from Other Countries' Succession Planning and Management
Initiatives, GAO-03-914 (Washington, D.C.: Sept. 15, 2003).
efforts. As part of that engagement, we plan to examine how they are
implementing these key practices.
Strengthening Federal Employee Training and Development
As they continue to build their fundamental management capabilities,
federal agencies will need to invest resources, including time and money,
to ensure that their employees have the information, skills, and
competencies they need to work effectively in a rapidly changing and
complex environment. This includes investments in training and developing
employees as part of an agency's overall effort to achieve cost-effective
and timely results. To this end, we have developed a framework that
federal agencies can use to ensure that their training and development
investments are targeted strategically and are not wasted on efforts that
are irrelevant, duplicative, or ineffective.11 This framework consists of
a set of principles and key questions that can help agencies assess their
training and development efforts and make it easier to determine what,
where, and how improvements may be implemented.
We also recently reviewed selected agencies' experiences and lessons in
key aspects of designing training and development programs.12 The
officials emphasized that their agencies are transitioning to more formal
and comprehensive planning approaches to assess skill and competency
requirements and identify related training and development needs-
primarily as part of broader efforts to incorporate workforce planning
into ongoing strategic planning and budgeting processes focused on
achieving results.
To develop strategies and solutions for training needs, the selected
agencies considered a mixture of delivery mechanisms, as well as potential
sources for training and development opportunities. However, projecting
costs and benefits of proposed training and development programs presented
challenges for them. The agencies usually developed broad information on
anticipated benefits and expected costs of potential investments, although
often without tying benefits to specific performance
11U.S. General Accounting Office, Human Capital: A Guide for Assessing
Strategic Training and Development Efforts in the Federal Government,
GAO-04-546G (Washington, D.C.: March 2004).
12U.S. General Accounting Office, Human Capital: Selected Agencies'
Experiences and Lessons Learned in Designing Training and Development
Programs, GAO-04-291 (Washington, D.C.: Jan. 30, 2004).
improvements or considering all costs. For example, one of the lessons
learned was to establish mechanisms to avoid duplication or
inconsistencies. Education Service Representatives in each regional
Veterans Health Administration network, for example, coordinate training
and development programs with headquarters-sharing information about
successful practices and identifying areas where coordination is needed.
Implementing Pay for Performance
Modernizing Senior Executive Performance Management
There is a growing understanding that the federal government needs to
fundamentally rethink its current approach to pay and to better link pay
to individual and organizational performance. As you are aware, GAO
strongly supports the need to expand pay for performance in the federal
government. Nevertheless, how it is done, when it is done, and the basis
on which it is done, can make all the difference in whether such efforts
are successful. High-performing organizations continuously review and
revise their performance management systems to achieve results, accelerate
change, and facilitate two-way communication throughout the year so that
discussions about individual and organizational performance are integrated
and ongoing.
Senior executives need to lead the way to transform their agencies'
cultures to be more results oriented, customer focused, and collaborative
in nature. Performance management systems that are valid, reliable, and
transparent with reasonable safeguards can help manage and direct this
process. We previously reported that more progress is needed in explicitly
linking senior executives' performance expectations to contributing to the
achievement of results-oriented organizational goals, fostering the
necessary collaboration both within and across organizational boundaries
to achieve results, and demonstrating a commitment to lead and facilitate
change.13
Recently, Congress and the administration have sought to modernize senior
executive performance management systems by establishing a new
performance-based pay system for the Senior Executive Service (SES) that
is designed to provide a clear and direct linkage between SES performance
13U.S. General Accounting Office, Results-Oriented Cultures: Using
Balanced Expectations to Manage Senior Executive Performance, GAO-02-966
(Washington, D.C.: Sept. 27, 2002).
and pay.14 With the new system, an agency can raise the pay cap for its
senior executives if OPM certifies and OMB concurs that the agency's
performance management system, as designed and applied, makes meaningful
distinctions based on relative performance. However, data suggest that
more work is needed in making such distinctions. Agencies rated about 75
percent of senior executives at the highest levels their systems
permitted, and approximately 49 percent of senior executives received
bonuses in fiscal year 2002, the most current year for which data are
available.
We recently assessed how well the Departments of Education and Health and
Human Services (HHS) and NASA are creating linkages between senior
executive performance and their organizations' success.15 Overall, we
concluded that Education, HHS, and NASA have undertaken important and
valuable efforts, but these agencies need to continue to make substantial
progress in using their senior executive performance management systems to
strengthen the linkage between senior executive performance and
organizational success.
For example, senior executives' perceptions at Education, HHS, and NASA
indicate that these three agencies have opportunities to use their career
senior executive performance management systems more strategically to
strengthen that link. Specifically, based on our survey of career senior
executives, we found that generally less than half of the senior
executives at Education, HHS, and NASA believe that their agencies are
fully using their performance management systems as a tool to manage the
organization or to achieve organizational goals.
In addition, generally less than half of the senior executives at
Education, HHS, and NASA felt that their agencies are fully using their
performance management systems to achieve such systems' three key
objectives. Effective performance management systems (1) strive to provide
candid and constructive feedback to help individuals maximize their
contribution and potential in understanding and realizing the goals and
objectives of the organization, (2) seek to provide management with the
objective and fact
14 See section 1322 of Public Law 107-296, November 25, 2002, and section
1125 of Public Law 108-136, November 24, 2003.
15U.S. General Accounting Office, Human Capital: Senior Executive
Performance Management Can Be Significantly Strengthened to Achieve
Results, GAO-04-614 (Washington, D.C.: May 26, 2004).
based information it needs to reward top performers, and (3) provide the
necessary information and documentation to deal with poor performers.
Information on Education's, HHS's, and NASA's experiences and knowledge
should provide valuable insights to other agencies as they seek to use
senior executive performance management as a strategic tool to drive
internal change and achieve external results. Overall, we recommended that
the Secretaries of Education and HHS and the Administrator of NASA
continue to build their career senior executive performance management
systems along the key practices we previously identified for effective
performance management.16 NASA concurred with all the recommendations and
plans to implement the recommendations in its next SES appraisal cycle.
While HHS did not provide formal comments on the report, an HHS official
told us that they intend to incorporate our recommendations into future
revisions to its system in response to OPM's new SES pay system. Education
described specific actions it plans to take to revise its SES system,
which are generally consistent with our recommendations.
Implementing Pay for Several federal agencies have experimented with new
pay for performance
Performance at Personnel systems through OPM's personnel demonstration
projects. We reported on
Demonstration Projects the approaches selected demonstration projects have
taken in designing and implementing their pay for performance systems.17
Overall, these demonstration projects show an understanding that linking
pay to performance is very much a work in progress at the federal level.
Their approaches follow.
o Using competencies to evaluate employee performance. We found that
high-performing organizations use validated core competencies as a key
part of evaluating individual contributions to organizational results.
Several demonstration projects use core competencies for all positions
across the organization to evaluate performance, while some demonstration
projects use competencies based primarily on the individual position.
16For information on these key practices, see 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).
17U.S. General Accounting Office, Human Capital: Implementing Pay for
Performance at Selected Personnel Demonstration Projects, GAO-04-83
(Washington, DC: Jan. 23, 2004).
o Translating employee performance ratings into pay increases and awards.
We have also recognized that high-performing organizations traditionally
seek to create pay, incentive, and reward systems that clearly link
employee knowledge, skills, and contributions to organizational results.
Some demonstration projects establish predetermined pay increases, awards,
or both depending on a given performance rating, while others delegated
the flexibility to individual pay pools to determine how ratings would
translate into pay increases, awards, or both. The demonstration projects
made some distinctions among employees' performance.
o Considering current salary in making performance-based pay decisions.
Several of the demonstration projects consider an employee's current
salary when making pay increase and award decisions. With this approach,
there is an attempt to better match an employee's compensation and his or
her contribution to the organization. Therefore, two employees with
comparable contributions could receive different performance pay increases
and awards depending on their current salaries.
o Managing costs of the pay for performance system. The major cost
drivers of implementing pay for performance systems at demonstration
projects were salaries, training, and automation and data systems,
according to project officials. In making their pay decisions, some of the
demonstration projects use funding sources such as the annual general pay
increase and locality pay adjustment. For example, to manage salary costs,
some of the demonstration projects consider fiscal conditions and the
labor market when determining how much to budget for pay increases, manage
movement through the pay band, and provide a mix of one-time awards and
permanent pay increases.
o Providing information to employees about the results of performance
appraisal and pay decisions. To ensure fairness and guard against abuse,
performance-based pay systems should have adequate safeguards. One such
safeguard is to ensure reasonable transparency and appropriate
accountability mechanisms in connection with the results of the
performance management process. Several of the demonstration projects
accomplish this by publishing information for employees, such as the
average performance rating, performance pay increase, and award.
We observed that additional work is needed to strengthen efforts to ensure
that the demonstration projects' performance management systems are tools
to help them manage on a day-to-day basis. In particular, there are
opportunities to use organizationwide competencies to evaluate employee
performance that reinforce behaviors and actions that support the
organization's mission, translate employee performance so that managers
can make meaningful distinctions between top and poor performers with
objective and fact-based information, and provide information to employees
about the results of the performance appraisals and pay decisions to
ensure that reasonable transparency and appropriate accountability
mechanisms are in place.
Creating Strategic Human Capital Offices
In creating the CHCO, Congress has underscored the critical role
leadership must play in human capital management. If people are the
federal government's most important asset to drive its performance and key
to its transformation, they must have leadership and support. Agencies are
increasingly recognizing how human capital activities contribute to
achieving mission and goals as they integrate their human capital
strategies with their organizational mission, visions, core values, goals,
and objectives.
Selected agencies are seeking to shift the focus of their human capital
offices from primarily compliance activities to consulting activities.
They are taking several key actions to make this shift.18
o Agency leaders included human capital leaders in key agency strategic
planning and decision making and, as a result, the agencies engaged the
human capital organization as a strategic partner in achieving desired
outcomes relating to the agency's mission.
o Human capital leaders took actions to transform the agencies' human
capital organizations by establishing clear strategic visions,
restructuring their organizations, and improving the use of technology to
free organizational resources. These leaders also promoted a transition to
a larger strategic role for human capital professionals with their focus
being more on consulting rather than compliance activities.
18U.S. General Accounting Office, Human Capital: Selected Agency Actions
to Integrate Human Capital Approaches to Attain Mission Results,
GAO-03-446 (Washington, D.C.: Apr. 11, 2003).
The human capital profession is in transition from valuing narrowly
focused specialists to requiring generalists, who have all the skills
necessary to play an active role in helping to determine the overall
strategic direction of the organization.
o Jointly, agency leaders and human capital leaders are having human
capital professionals and agency line managers share the accountability
for successfully integrating human capital considerations into agency
strategic planning and decision making.
At the same time, human capital offices are understanding that they need
to think broadly about how specific services are delivered. Human capital
offices have traditionally used alternative service delivery (ASD)-the use
of other than internal staff to provide a service or to deliver a
product-as a way to reduce costs for transaction-based services. We
reported that, according to agency officials, a primary driver for using
ASD included taking advantage of the economies of scale that specialized
providers can offer.19 For instance, OPM's e-payroll initiative is
designed to eventually collapse the operations of 22 executive branch
payroll systems into 2 systems. By using consolidated ASD providers for
their payroll services, federal agencies should realize cost savings from
lower operational costs, eliminated duplicative systems investments, and
simplified payroll processing.
Our report described how selected agencies were using ASD for the full
range of their human capital activities, including advisory services and
strategy and policy support activities as well as transaction-based
services. Conceptually, agency officials agreed that human capital
activities that did not require an intimate knowledge of the agency,
oversight, or decisionmaking authority could be considered for ASD,
although in practice they showed differences in their choices of ASD
activities. Frequently cited reasons for using ASD were to free staff to
focus on core activities where the human capital office can add strategic
value and to respond to reductions in human capital staffing. In addition,
using ASD for sporadic activities allows agencies to contract for the
services only when needed. For example, the U.S. Fish and Wildlife Service
used ASD for its classification appeals and studies, equal employment
opportunity and
19U.S. General Accounting Office, Human Capital: Selected Agencies' Use of
Alternative Service Delivery Options for Human Capital Activities,
GAO-04-679 (Washington, D.C.: June 25, 2004).
administrative investigations, and mediations. Also, agency officials
noted that gaining access to expertise and being able to respond quickly
to changing environments were primary reasons for using ASD for human
capital policy formulation and support activities, such as workforce
planning and organizational assessment. A private sector contractor, for
example, helped the U.S. Department of Agriculture develop the design for
a corporate leadership development program to prepare upper-level managers
for future leadership roles. One of the rationales for relying on a
contractor was that the contractor had the research edge on best practices
gleaned from completing needs assessments with other organizations.
We recommended that OPM provide comprehensive information about how
agencies can use ASD for their human capital activities and that the CHCO
Council could be an excellent vehicle to assist in this area. Given its
potential benefits, it appears that the use of ASD will increase among
federal agencies. By sharing experiences and lessons learned, agencies may
be better prepared to use ASD to help them meet their human capital
challenges.
Next Steps in Federal Human Capital Reform
The broad human capital authorities that Congress provided to DHS when it
created the agency and to DOD were clearly important to helping these
agencies meet current needs and prepare for the future. Nonetheless, these
and related recent actions have significant, precedent-setting
implications for the rest of government. 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. Moving forward, GAO believes it would be both
prudent and preferable to employ a governmentwide approach to address the
need for human capital authorities that have broad-based application and
serious implications for the civil service system. Employing this approach
is not intended to delay any individual agency's efforts, but rather to
accelerate needed human capital reform throughout the federal government
in a manner that ensures reasonable consistency within the overall
civilian workforce. In short, the important changes under way at
individual agencies naturally are suggesting that broader, more systematic
civil service reform should be seriously considered.
To help advance the discussion concerning how human capital reform should
proceed, GAO and the National Commission on the Public Service
Implementation Initiative cohosted a forum to discuss whether there should
be a framework for human capital reform, and if yes, what principles,
criteria, and processes should be included in that framework. We will
issue a summary of that forum in the coming weeks. However, the discussion
was centered on three areas: 1) principles that the government should
retain in a framework for reform because of their inherent, enduring
qualities; 2) criteria that agencies should have in place as they plan and
manage their new human capital authorities; and 3) processes that agencies
should follow as they implement new human capital flexibilities.
In addition, the Chairman of the Committee on Governmental Affairs has
asked us to help craft a statutory framework of human capital authorities
and flexibilities that would help Congress as it considers agency-specific
requests for human capital reforms. We look forward to continuing to
assist Congress as it considers these important and difficult questions.
GAO's Human Capital Reform Act of 2004 Is Intended to Help Ensure a
Highperforming Workforce
GAO exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and ensure the
accountability of the federal government for the benefit of the American
people. We deeply appreciate the support and assistance we have received
from this subcommittee and others in Congress in providing us with the
tools and authorities we need to support Congress.
Unlike many executive branch agencies, which have either recently received
or are just requesting new broad-based human capital tools and
flexibilities, GAO has had certain human capital tools and flexibilities
for over two decades. GAO's recently enacted Human Capital Reform Act of
2004 (Human Capital II), which, as you know, was recently signed by the
President, combines diverse initiatives that, collectively, should further
GAO's ability to enhance our performance; assure our accountability; and
help ensure that we can attract, retain, motivate, and reward a
top-quality and high-performing workforce currently and in future years.20
These initiatives should also have the benefit of helping guide other
agencies in their human capital transformation efforts.
20For more information, see Public Law 108-271, July 7, 2004, and U.S.
General Accounting Office, GAO: Additional Human Capital Flexibilities Are
Needed, GAO-03-1024T (Washington, D.C.: July 16, 2003).
Specifically, Human Capital II allows for the following additional human
capital tools and flexibilities:
o make permanent GAO's 3-year authority to offer voluntary early
retirement and voluntary separation incentive payments;
o allow the Comptroller General to adjust the rates of basic pay of GAO
on a separate basis from the annual adjustments authorized for employees
of the executive branch;
o permit GAO to set the pay of an employee demoted as a result of
workforce restructuring or reclassification at his or her current rate
with no automatic annual increase to basic pay until his or her salary is
less than the maximum rate for the new position;
o provide authority in appropriate circumstances to reimburse employees
for some relocation expenses when that transfer does not meet current
legal requirements for entitlement to reimbursement but still benefits
GAO;
o provide authority to put key officers and employees with less than 3
years of federal experience in the 6-hour leave category;
o authorize an executive exchange program with private sector
organizations working in areas of mutual concern to further the
institutional interest of the GAO or Congress, including for the purpose
of providing training; and
o change GAO's legal name from the "General Accounting Office" to the
"Government Accountability Office."
The Comptroller General and other GAO Executive Committee members engaged
in a broad range of outreach and consultation activities with GAO staff on
the Human Capital II legislation as it was being developed.21 For example,
the Comptroller General held two televised chats to inform GAO staff about
the proposal. He also discussed the proposal with all staff including
managing directors and the Employee Advisory Council on
21See, for example, U.S. General Accounting Office, GAO's Proposed Human
Capital Legislation: View of the Employee Advisory Council, GAO-03-1020T
(Washington, D.C.: July 16, 2003).
multiple occasions. He held a number of listening sessions with staff and
incorporated feedback from these sessions into the proposal for Human
Capital II. A link from the GAO internal home page was established that
allowed employees to review a series of questions and answers, explanatory
charts, and statements to Congress regarding the legislation.
We have already begun to implement some of the flexibilities we received.
For example, we posted and requested employee comments on the order that
establishes the interim regulations on GAO's voluntary early retirement
authority that are in effect immediately. GAO believes that careful use of
voluntary early retirement has been an important tool in incrementally
improving the agency's overall human capital profile. Each separation has
freed resources for other uses, enabling GAO to fill an entrylevel
position or to fill a position that will reduce a skill gap or address
other succession concerns.
In addition, our name has changed to the "Government Accountability
Office." At the same time, the well-known acronym "GAO" will be
maintained. Although currently less than 15 percent of agency resources
are devoted to traditional financial auditing and accounting activities,
members of the public, the press, as well as Congress in the past
incorrectly assumed that GAO was solely a financial auditing organization.
In addition, the former name confused many potential job applicants, who
assumed that GAO was only interested in hiring accountants. We believe
that the new name will help attract applicants and address certain
"expectation gaps" that exist outside of GAO.
GAO is studying the implementation of the pay adjustment provision that
would allow GAO to determine the amount of the current annual
acrossthe-board pay adjustments that take into account differences in
locality. GAO will, absent extraordinary economic conditions or serious
budgetary constraints, provide all GAO staff whose performance is at a
satisfactory level both across-the-board and, as appropriate,
performance-based annual pay adjustments. GAO will also be able to develop
and apply its own methodology for annual across-the-board pay adjustments
that take into account differences in locality, which would be more
representative of the nature, skills, and composition of GAO's workforce
and will incorporate consideration of market-based salary data. GAO has
recently let a contract to help inform our decision making on
compensation. As in the past, GAO will continue to solicit input from
employees and incorporate their views as appropriate as part of this
process.
We believe that it is vitally important to GAO's future that we continue
modernizing and updating our human capital policies and system in light of
the changing environment and anticipated challenges ahead. We believe that
the GAO Human Capital Reform Act is well reasoned with adequate safeguards
for GAO employees. Given our human capital infrastructure and our unique
role in leading by example in major management areas, including human
capital management, the federal government will benefit from GAO's
experience with pay for performance systems.
Chairman Voinovich and Members of the subcommittee, this concludes my
prepared statement. I would be pleased to answer any questions you may
have.
Contacts and Acknowledgments
(450343)
For further information regarding this statement, please contact J.
Christopher Mihm, Managing Director, Strategic Issues, on (202) 512-6806
or at [email protected] or Eileen Larence, Acting Director, Strategic Issues,
on (202) 512-6806 or at [email protected]. Individuals making key
contributions to this statement included Mallory Barg, Michelle Bracy, K.
Scott Derrick, William Doherty, Clifton G. Douglas Jr., Judith Kordahl,
Janice Latimer, Trina Lewis, and Lisa Shames.
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