Human Capital: Observations on Final DHS Human Capital		 
Regulations (02-MAR-05, GAO-05-391T).				 
                                                                 
People are critical to any agency transformation, such as the one
envisioned for the Department of Homeland Security (DHS). They	 
define an agency's culture, develop its knowledge base, and are  
its most important asset. Thus, strategic human capital 	 
management at DHS can help it marshal, manage, and maintain the  
people and skills needed to meet its critical mission. Congress  
provided DHS with significant flexibility to design a modern	 
human capital management system. DHS and the Office of Personnel 
Management (OPM) have now jointly released the final regulations 
on DHS's new human capital system. Last year, with the release of
the proposed regulations, GAO observed that many of the basic	 
principles underlying the regulations were consistent with proven
approaches to strategic human capital management and deserved	 
serious consideration. However, some parts of the human capital  
system raised questions for DHS, OPM, and Congress to consider in
the areas of pay and performance management, adverse actions and 
appeals, and labor management relations. GAO also identified	 
multiple implementation challenges for DHS once the final	 
regulations for the new system were issued. This testimony	 
provides overall observations on DHS's intended human capital	 
system and selected provisions of the final regulations.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-391T					        
    ACCNO:   A18577						        
  TITLE:     Human Capital: Observations on Final DHS Human Capital   
Regulations							 
     DATE:   03/02/2005 
  SUBJECT:   Compensation					 
	     Federal agency reorganization			 
	     Federal regulations				 
	     Human capital					 
	     Human capital management				 
	     Human capital planning				 
	     Human capital policies				 
	     Internal controls					 
	     Performance appraisal				 
	     Performance measures				 
	     Personnel management				 

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GAO-05-391T

United States Government Accountability Office

GAO Testimony

Before the Subcommittee on the Federal Workforce and Agency Organization,
Committee on Government Reform, House of Representatives

For Release on Delivery
Expected at 10:00 a.m. EST HUMAN CAPITAL
Wednesday, March 2, 2005

                           Observations on Final DHS
                           Human Capital Regulations

Statement of David M. Walker Comptroller General of the United States

                                       a

GAO-05-391T

[IMG]

March 2, 2005

HUMAN CAPITAL

Observations on Final DHS Human Capital Regulations

  What GAO Found

GAO believes that DHS's regulations contain many of the basic principles
that are consistent with proven approaches to strategic human capital
management. Positively, the final regulations provide for (1) a flexible,
contemporary, performance-oriented, and market-based compensation system,
including occupational clusters and pay bands; (2) continued involvement
of employees and union officials throughout the implementation process,
such as by participating in the development of the implementing directives
and holding membership on the Homeland Security Compensation Committee;
and (3) evaluations of the implementation of DHS's system.

On the other hand, GAO has three areas of concern that deserve attention
from DHS senior leadership. First, DHS has considerable work ahead to
define the details of the implementation of its system and getting those
details right will be critical to the success of the overall system.
Second, the performance management system merely allows, rather than
requires, the use of core competencies that can help to provide reasonable
consistency and clearly communicate to employees what is expected of them.
Third, the pass/fail ratings or three summary rating levels for certain
employee groups do not provide the meaningful differentiation in
performance needed for transparency to employees and for making the most
informed pay decisions.

Going forward, GAO believes that especially for this multiyear
transformation, the Chief Operating Officer/Chief Management Officer
concept could help to elevate, integrate, and institutionalize
responsibility for the success of DHS's new human capital system and
related implementation and transformation efforts. Second, a key
implementation step for DHS is to assure an effective and on-going two-way
communication effort that creates shared expectations among managers,
employees, customers, and stakeholders. Last, DHS must ensure that it has
the institutional infrastructure in place to make effective use of its new
authorities. At a minimum, this infrastructure includes a human capital
planning process that integrates human capital policies, strategies, and
programs with its program goals, mission, and desired outcomes; the
capabilities to effectively develop and implement a new human capital
system; and importantly, the existence of a modern, effective, and
credible performance management system that includes adequate safeguards
to help assure consistency and prevent abuse.

While GAO strongly supports federal human capital reform, how it is done,
when it is done, and the basis on which it is done can be the difference
between success and failure. Thus, the DHS regulations are especially
critical because of their potential implications for related
governmentwide reform.

                 United States Government Accountability Office

Chairman Porter and Members of the Subcommittee:

I appreciate the opportunity to be here today to provide our observations
on the Department of Homeland Security's (DHS) final regulations on its
new human capital system, which were published last month jointly by the
Secretary of DHS and the Director of the Office of Personnel Management
(OPM). As you know, I recently testified on these regulations before the
Senate's Committee on Homeland Security and Governmental Affairs,
Subcommittee on Oversight of Government Management, the Federal Workforce,
and the District of Columbia.1 Since then, GAO issued its report on 21st
century challenges, which is intended to help the Congress address a range
of 21st century trends and challenges, including our current unsustainable
fiscal path, by providing a series of illustrative questions that could
help support a fundamental and broad-based reexamination initiative.2
Among the questions relevant to this hearing is one that asks: "How should
the federal government update its compensation systems to be more
market-based and performance-oriented?"

As the title of this hearing suggests-"The Countdown to Completion:
Implementing the New Department of Homeland Security Personnel
System"-DHS, and in many cases the federal government, must transform how
it classifies, develops, motivates, and compensates its employees to
achieve maximum results within available resources. People are critical to
any agency's transformation, such as the one envisioned for DHS. They
define an agency's culture, develop its knowledge, and are its most
important asset. Thus, strategic human capital management at DHS can help
it marshal, manage, and maintain the people and skills needed to meet its
critical mission.

As we recently reported in our High-Risk Series, significant changes in
how the federal workforce is managed, such as DHS's new human capital
system, are underway.3 Consequently, there is general recognition that the
government needs a framework to guide this human capital reform, one

1See Highlights page attached to this statement and GAO, Human Capital:
Preliminary Observations on Final Department of Homeland Security Human
Capital Regulations, GAO-05-320T (Washington, D.C.: Feb. 10, 2005).

2GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO05-325SP (Washington, D.C.: February 2005).

3GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January
2005).

that Congress and the administration can implement to enhance performance,
ensure accountability, and position the nation for the future. These final
regulations, which according to DHS will affect about 110,000 federal
employees, are especially critical because of their implications for
governmentwide reforms.

Today, I will discuss some of the major features of the DHS regulations.
In doing so, I will touch on several key themes. Specifically, I will
highlight three positive features, three areas of concern, and three
comments going forward that are suggested in my statement today. Let me
start by summarizing three positive features of the proposed DHS human
capital system. First, we believe that, consistent with the observations
we made a year ago, the proposed regulations provide for a flexible,
contemporary, performance-oriented, and market-based compensation system.4
Under the regulations, DHS is to establish occupational clusters and pay
bands and may, after coordination with OPM, set and adjust pay ranges
taking into account mission requirements, labor market conditions,
availability of funds, and other relevant factors. Second, DHS appears to
be committed to continue to involve employees and union officials
throughout the implementation process, including participating in the
development of the implementing directives, holding membership on the
Homeland Security Compensation Committee, and helping in the design and
review of the evaluations of the new system. Third, high-performing
organizations continually review and revise their human capital systems.
To this end, the final regulations state that DHS is to establish
procedures for evaluating the implementation of its system.

On the other hand, I have three areas of concern that I believe need to be
addressed to maximize DHS's chance of success. First, DHS has considerable
work ahead to define the details of the implementation of its system and
understanding these details is important in assessing the overall system.
Second, the performance management system merely allows, rather than
requires, the use of core competencies that can help to provide reasonable
consistency and clearly communicate to employees what is expected of them.
Employees validating these competencies would

4GAO, Human Capital: Preliminary Observations on Proposed DHS Human
Capital Regulations, GAO-04-479T (Washington, D.C.: Feb. 25, 2004);
Posthearing Questions Related to Proposed Department of Homeland Security
(DHS) Human Capital Regulations, GAO-04-570R (Washington, D.C.: Mar. 22,
2004); and Additional Posthearing Questions Related to Proposed Department
of Homeland Security (DHS) Human Capital Regulations, GAO-04-617R
(Washington, D.C.: Apr. 30, 2004).

help to gain their acceptance and credibility and minimize adverse
actions. This has certainly been our experience with our own internal
efforts at GAO. Third, pass/fail ratings for employees in the
"Entry/Developmental" band or three summary rating levels for other
employee groups do not provide the meaningful differentiation in
performance needed for transparency to employees and for making the most
informed pay decisions.

Going forward, we believe that especially for this multiyear
transformation, the Chief Operating Officer/Chief Management Officer
concept could help to elevate, integrate, and institutionalize
responsibility for the success of DHS's new human capital system. Second,
a key implementation step for DHS is to assure an effective and on-going
two-way communication effort that creates shared expectations among
managers, employees, customers, and stakeholders. Last, we are very
concerned that DHS must ensure that it has the institutional
infrastructure in place to make effective use of its new authorities. At a
minimum, this infrastructure includes a human capital planning process
that integrates human capital policies, strategies, and programs with its
program goals, mission, and desired outcomes; the capabilities to
effectively develop and implement a new human capital system; and
importantly, the existence of a modern, effective, and credible
performance management system that includes adequate safeguards to help
assure consistency and prevent abuse.

This morning I would like to provide some observations on the final DHS
regulations, discuss the multiple challenges that DHS confronts as it
moves towards implementation of its new human capital system, and then
suggest a governmentwide framework that can serve as a starting point to
advance human capital reform.

Observations on Final The final regulations establish a new human capital
system for DHS that is

intended to assure its ability to attract, retain, and reward a workforce
thatDHS Human Capital is able to meet its critical mission. Further, the
human capital system is to Regulations provide for greater flexibility and
accountability in the way employees are

to be paid, developed, evaluated, afforded due process, and represented by
labor organizations while reflecting the principles of merit and fairness
embodied in the statutory merit systems principles.

Predictable with any change management initiative, the DHS regulations
have raised some concerns among employee groups, unions, and other
stakeholders because they do not have all the details of how the system
will be implemented and impact them. We have reported that individuals
inevitably worry during any change management initiative because of
uncertainty over new policies and procedures.5 A key practice to address
this worry is to involve employees and their representatives to obtain
their ideas and gain their ownership for the initiative. Thus, a
significant improvement from the proposed regulations is that now employee
representatives are to be provided with an opportunity to remain involved.
Specifically, they can discuss their views with DHS officials and/or
submit written comments as implementing directives are developed, as
outlined under the "continuing collaboration" provisions. This
collaboration is consistent with DHS's statutory authority to establish a
new human capital system, which requires such continuing collaboration.
Under the regulations, nothing in the continuing collaboration process is
to affect the right of the Secretary to determine the content of
implementing directives and to make them effective at any time.

In addition, the final regulations state that DHS is to establish
procedures for evaluating the implementation of its human capital system.
Highperforming organizations continually review and revise their human
capital management systems based on data-driven lessons learned and
changing needs in the environment. Collecting and analyzing data is the
fundamental building block for measuring the effectiveness of these
systems in support of the mission and goals of the agency.

We continue to believe that many of the basic principles underlying the
DHS regulations are generally consistent with proven approaches to
strategic human capital management. Today, I will provide our observations
on the following elements of DHS's human capital system as outlined in the
final regulations-pay and performance management, adverse actions and
appeals, and labor-management relations.

5GAO, Results-Oriented Cultures: Implementation Steps to Assist Mergers
and Organizational Transformations, GAO-03-669 (Washington, D.C.: July 2,
2003) and Highlights of a GAO Forum: Lessons Learned for a Department of
Homeland Security and Other Federal Agencies, GAO-03-293SP (Washington,
D.C.: Nov. 14, 2002).

Pay and Performance Management

Last year, we testified that the DHS proposal reflects a growing
understanding that the federal government needs to fundamentally rethink
its current approach to pay and better link pay to individual and
organizational performance.6 To this end, the DHS proposal takes another
valuable step towards modern performance management. Among the key
provisions is a performance-oriented and market-based pay system.

We have observed that a competitive compensation system can help
organizations attract and retain a quality workforce.7 To begin to develop
such a system, organizations assess the skills and knowledge they need;
compare compensation against other public, private, or nonprofit entities
competing for the same talent in a given locality; and classify positions
along levels of responsibility. While one size does not fit all,
organizations generally structure their competitive compensation systems
to separate base salary-which all employees receive-from other special
incentives, such as merit increases, performance awards, or bonuses, which
are provided based on performance and contributions to organizational
results.

According to the final regulations, DHS is to establish occupational
clusters and pay bands that replace the current General Schedule (GS)
system now in place for much of the civil service. DHS may, after
coordination with OPM, establish occupational clusters based on factors
such as mission or function, nature of work, qualifications or
competencies, career or pay progression patterns, relevant labor-market
features, and other characteristics of those occupations or positions. DHS
is to document in implementing directives the criteria and rationale for
grouping occupations or positions into clusters as well as the definitions
for each band's range of difficulty and responsibility, qualifications,
competencies, or other characteristics of the work.

As we testified last year, pay banding and movement to broader
occupational clusters can both facilitate DHS's movement to a pay for
performance system and help DHS to better define occupations, which can
improve the hiring process. We have reported that the current GS system as
defined in the Classification Act of 1949 is a key barrier to
comprehensive human capital reform and the creation of broader
occupational job clusters

                          6GAO-04-479T. 7GAO-04-617R.

and pay bands would aid other agencies as they seek to modernize their
personnel systems.8 Today's jobs in knowledge-based organizations require
a much broader array of tasks that may cross over the narrow and rigid
boundaries of job classifications of the GS system.

Under the final regulations, DHS is to convert employees from the GS
system to the new system without a reduction in their current pay.
According to DHS, when employees are converted from the GS system to a pay
band, their base pay is to be adjusted to include a percentage of their
next within-grade increase, based on the time spent in their current step
and the waiting period for the next step. DHS stated that most employees
would receive a slight increase in salary upon conversion to a pay band.
This approach is consistent with how several of OPM's personnel
demonstration projects converted employees from the GS system.

The final DHS regulations include other elements of a modern compensation
system. For example, the regulations provide that DHS may, after
coordination with OPM, set and adjust the pay ranges for each pay band
taking into account mission requirements, labor market conditions,
availability of funds, pay adjustments received by other federal
employees, and any other relevant factors. In addition, DHS may, after
coordination with OPM, establish locality rate supplements for different
occupational clusters or for different bands within the same cluster in
the same locality pay area. According to DHS, these locality rates would
be based on the cost of labor rather than cost of living factors. The
regulations state that DHS would use recruitment or retention bonuses if
it experiences such problems due to living costs in a particular
geographic area.

8GAO, Human Capital: Opportunities to Improve Executive Agencies' Hiring
Processes, GAO-03-450 (Washington, D.C.: May 30, 2003).

Especially when developing a new performance management system,
highperforming organizations have found that actively involving employees
and key stakeholders, such as unions or other employee associations, helps
gain ownership of the system and improves employees' confidence and belief
in the fairness of the system.9 DHS recognized that the system must be
designed and implemented in a transparent and credible manner that
involves employees and employee representatives. A new and positive
addition to the final regulations is a Homeland Security Compensation
Committee that is to provide oversight and transparency to the
compensation process. The committee-consisting of 14 members, including
four officials of labor organizations-is to develop recommendations and
options for the Secretary's consideration on compensation and performance
management matters, including the annual allocation of funds between
market and performance pay adjustments.

While the DHS regulations contain many elements of a performance-based and
market-oriented pay system, there are several issues that we identified
last year that DHS will need to continue to address as it moves forward
with the implementation of the system. These issues include linking
organizational goals to individual performance, using competencies to
provide a fuller assessment of performance, making meaningful distinctions
in employee performance, and continuing to incorporate adequate safeguards
to ensure fairness and guard against abuse.

Linking Organizational Goals to Consistent with leading practice, the DHS
performance management

Individual Performance	system is to align individual performance
expectations with the mission, strategic goals, organizational program and
policy objectives, annual performance plans, and other measures of
performance. DHS's performance management system can be a vital tool for
aligning the organization with desired results and creating a "line of
sight" showing how team, unit, and individual performance can contribute
to overall organizational results.10 However, as we testified last year,
agencies struggle to create this line of sight.

9GAO, Results-Oriented Cultures: Creating a Clear Linkage between
Individual Performance and Organizational Success, GAO-03-488 (Washington,
D.C.: Mar. 14, 2003).

10GAO-03-488.

Using Competencies to Provide a Fuller Assessment of Performance

Making Meaningful Distinctions in Employee Performance

DHS appropriately recognizes that given its vast diversity of work,
managers and employees need flexibility in crafting specific performance
expectations for their employees. These expectations may take the form of
competencies an employee is expected to demonstrate on the job, among
other things. However, as DHS develops its implementing directives, the
experiences of leading organizations suggest that DHS should reconsider
its position to merely allow, rather than require, the use of core
competencies that employees must demonstrate as a central feature of its
performance management system. Based on our review of others' efforts and
our own experience at GAO, core competencies can help reinforce employee
behaviors and actions that support the department's mission, goals, and
values and can provide a consistent message to employees about how they
are expected to achieve results.11 For example, an OPM personnel
demonstration project-the Civilian Acquisition Workforce Personnel
Demonstration Project-covers various organizational units within the
Department of Defense and applies core competencies for all employees,
such as teamwork/cooperation, customer relations, leadership/supervision,
and communication.

Similarly, as we testified last year, DHS could use competencies-such as
achieving results, change management, cultural sensitivity, teamwork and
collaboration, and information sharing-to reinforce employee behaviors and
actions that support its mission, goals, and values and to set
expectations for individuals' roles in DHS's transformation. By including
such competencies throughout its performance management system, DHS could
create a shared responsibility for organizational success and help assure
accountability for change.

High-performing organizations seek to create pay, incentive, and reward
systems that clearly link employee knowledge, skills, and contributions to
organizational results. These organizations make meaningful distinctions
between acceptable and outstanding performance of individuals and
appropriately reward those who perform at the highest level.12 The final
regulations state that DHS supervisors and managers are to be held
accountable for making meaningful distinctions among employees based on
performance, fostering and rewarding excellent performance, and

11GAO, Human Capital: Implementing Pay for Performance at Selected
Personnel Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23,
2004).

12GAO-03-488.

addressing poor performance. While DHS states that as a general matter,
pass/fail ratings are incompatible with pay for performance, it is to
permit use of pass/fail ratings for employees in the "Entry/Developmental"
band or in other pay bands under extraordinary circumstances as determined
by the Secretary.

DHS is to require the use of a least three summary rating levels for other
employee groups. We urge DHS to consider using at least four summary
rating levels to allow for greater performance rating and pay
differentiation. This approach is in the spirit of the new governmentwide
performance-based pay system for the Senior Executive Service (SES), which
requires at least four levels to provide a clear and direct link between
SES performance and pay as well as to make meaningful

distinctions based on relative performance.13 Cascading this approach to
other levels of employees can help DHS recognize and reward employee
contributions and achieve the highest levels of individual performance.

Providing Adequate Safeguards As DHS develops its implementing directives,
it also needs to continue to

to Ensure Fairness and Guard build safeguards into its performance
management system. A concern that

Against Abuse 	employees often express about any pay for performance
system is supervisors' ability to assess performance fairly. Using
safeguards, such as having an independent body to conduct reasonableness
reviews of performance management decisions, can help to allay these
concerns and build a fair, credible, and transparent system.

It should be noted that the final regulations no longer provide for a
Performance Review Board (PRB) to review ratings in order to promote
consistency, provide general oversight of the performance management
system, and ensure it is administered in a fair, credible, and transparent
manner. According to the final regulations, participating labor
organizations expressed concern that the PRBs could delay pay decisions
and give the appearance of unwarranted interference in the performance
rating process. However, in the final regulations, DHS states that it
continues to believe that an oversight mechanism is important to the
credibility of the department's pay for performance system and that the
Compensation Committee, in place of PRBs, is to conduct an annual review

13For 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).

of performance payout summary data. While much remains to be determined
about how the Compensation Committee is to operate, we believe that the
effective implementation of such a committee is important to assuring that
predecisional internal safeguards exist to help achieve consistency and
equity, and assure non-discrimination and nonpoliticization of the
performance management process.

We have also reported that agencies need to assure reasonable transparency
and provide appropriate accountability mechanisms in connection with the
results of the performance management process.14 For DHS, this can include
publishing internally the overall results of performance management and
individual pay decisions while protecting individual confidentiality and
reporting periodically on internal assessments and employee survey results
relating to the performance management system. Publishing this information
can provide employees with the information they need to better understand
the performance management system and to generally compare their
individual performance with their peers. We found that several of OPM's
personnel demonstration projects publish information for employees on
internal Web sites that include the overall results of performance
appraisal and pay decisions, such as the average performance rating, the
average pay increase, and the average award for the organization and for
each individual unit.

Adverse Actions and Appeals

DHS's final regulations are intended to simplify and streamline the
employee adverse action process to provide greater flexibility for the
department and to minimize delays, while also ensuring due process
protections. It is too early to tell what impact, if any, these
regulations would have on DHS's operations and employees or other
entities, such as the Merit Systems Protection Board (MSPB). Close
monitoring of any unintended consequences, such as on MSPB and its ability
to manage cases from DHS and other federal agencies, is warranted.

In terms of adverse actions, the regulations modify the current federal
system in that the DHS Secretary will have the authority to identify
specific offenses for which removal is mandatory. In our previous
testimony on the proposed regulations, we expressed some caution about
this new authority

14GAO-04-83.

and pointed out that the process for determining and communicating which
types of offenses require mandatory removal should be explicit and
transparent. We noted that such a process should include an employee
notice and comment period before implementation and collaboration with
relevant congressional stakeholders and employee representatives. The
final DHS regulations explicitly provide for publishing a list of the
mandatory removal offenses in the Federal Register and in DHS's
implementing directives and making these offenses known to employees
annually.

In last year's testimony, we also suggested that DHS exercise caution when
identifying specific removable offenses and the specific punishment. When
developing and implementing the regulations, DHS might learn from the
experience of the Internal Revenue Service's (IRS) implementation of its

mandatory removal provisions.15 We reported that IRS officials believed
this provision had a negative impact on employee morale and effectiveness
and had a "chilling effect" on IRS frontline enforcement employees who
were afraid to take certain appropriate enforcement actions.16 Careful
drafting of each removable offense is critical to ensure that the
provision does not have unintended consequences.

Under the DHS regulations, employees alleged to have committed these
mandatory removal offenses are to have the right to a review by a newly
created panel. DHS regulations provide for judicial review of the panel's
decisions. Members of this three-person panel are to be appointed by the
Secretary for three-year terms. In last year's testimony, we noted that
the independence of the panel that is to hear appeals of mandatory removal
actions deserved further consideration. The final regulations address the
issue of independence by prescribing additional qualification requirements
which emphasize integrity and impartiality and requiring the Secretary to
consider any lists of candidates submitted by union representatives for
panel positions other than the chair. Employee perception concerning the
independence of this panel is critical to the mandatory removal process.

15Section 1203 of the IRS Restructuring and Reform Act of 1998 outlines
conditions for the firing of IRS employees for any of ten acts of
misconduct.

16GAO, Tax Administration: IRS and TIGTA Should Evaluate Their Processing
of Employee Misconduct Under Section 1203, GAO-03-394 (Washington, D.C.:
Feb. 14, 2003).

Regarding the appeal of adverse actions other than mandatory removals, the
DHS regulations generally preserve the employee's basic right to appeal
decisions to an independent body-MSPB-but with procedures different from
those applicable to other federal employees.17 However, in a change from
the proposed regulations in taking actions against employees for
performance or conduct issues, DHS is to meet a higher standard of
evidence-a "preponderance of evidence" instead of "substantial evidence."
For performance issues, while this higher standard of evidence means that
DHS would face a greater burden of proof than most agencies to pursue
these actions, DHS managers are not required to provide employees
performance improvement periods, as is the case for other federal
employees. For conduct issues, DHS would face the same burden of proof as
most agencies.

The regulations shorten the notification period before an adverse action
can become effective and provide an accelerated MSPB adjudication process.
In addition, MSPB may no longer modify a penalty for a conductbased
adverse action that is imposed on an employee by DHS unless such penalty
was "wholly without justification." The DHS regulations also stipulate
that MSPB can no longer require that parties enter into settlement
discussions, although either party may propose doing so. DHS expressed
concerns that settlement should be a completely voluntary decision made by
parties on their own. However, settling cases has been an important tool
in the past at MSPB, and promotion of settlement at this stage should be
encouraged.

The final regulations continue to support a commitment to the use of
Alternative Dispute Resolution (ADR), which we previously noted was a
positive development. To resolve disputes in a more efficient, timely, and
less adversarial manner, federal agencies have been expanding their human
capital programs to include ADR approaches, including the use of

17Employees under collective bargaining agreements can choose to grieve
and arbitrate adverse actions other than mandatory removals through
negotiated grievance procedures or take these actions to MSPB.

ombudsmen as an informal alternative to addressing conflicts.18 ADR is a
tool for supervisors and employees alike to facilitate communication and
resolve conflicts. As we have reported, ADR helps lessen the time and the
cost burdens associated with the federal redress system and has the
advantage of employing techniques that focus on understanding the
disputants' underlying interests over techniques that focus on the
validity of their positions.19 For these and other reasons, we believe
that it is important to continue to promote ADR throughout the process.

Labor-Management Relations

Under the DHS regulations, the scope and method of labor union involvement
in human capital issues are to change. DHS management is no longer
required to engage in collective bargaining and negotiations on as many
human capital policies and processes as in the past. For example, certain
actions that DHS has determined are critical to the mission and operations
of the department, such as deploying staff and introducing new
technologies, are now considered management rights and are not subject to
collective bargaining and negotiation. DHS, however, is to confer with
employees and unions in developing the procedures it will use to take
these actions. Other human capital policies and processes that DHS
characterizes as "non-operational," such as selecting, promoting, and
disciplining employees, are also not subject to collective bargaining, but
DHS must negotiate the procedures it will use to take these actions.
Finally, certain other policies and processes, such as how DHS will
reimburse employees for any "significant and substantial" adverse impacts
resulting from an action, such as a rapid change in deployment, must be
negotiated.

In addition, DHS is to establish its own internal labor relations
board-the Homeland Security Labor Relations Board-to deal with most
agencywide labor relations policies and disputes rather than submit them
to the Federal Labor Relations Authority. DHS stated that the unique
nature of its mission-homeland protection-demands that management have the
flexibility to make quick resource decisions without having to negotiate
them, and that its own internal board would better understand its mission
and, therefore, be better able to address disputes. Labor organizations
are

18GAO, Human Capital: The Role of Ombudsmen in Dispute Resolution,
GAO-01-466 (Washington, D.C.: Apr. 13, 2001).

19GAO, Alternative Dispute Resolution: Employers' Experiences With ADR in
the Workplace, GAO/GGD-97-157 (Washington D.C.: Aug. 12, 1997).

to nominate names of individuals to serve on the Board and the regulations
established some general qualifications for the board members. However,
the Secretary is to retain the authority to both appoint and remove any
member. Similar to the mandatory removal panel, employee perception
concerning the independence of this board is critical to the resolution of
the issues raised over labor relations policies and disputes. These
changes have not been without controversy, and four federal employee
unions have filed suit alleging that DHS has exceeded its authority under
the statute establishing the DHS human capital system.20 The suit
discusses bargaining and negotiability practices, adverse action
procedures, and the roles of the Federal Labor Relations Authority and
MSPB under the DHS regulations.

Our previous work on individual agencies' human capital systems has not
directly addressed the scope of specific issues that should or should not
be subject to collective bargaining and negotiations. At a forum we
co-hosted exploring the concept of a governmentwide framework for human
capital reform, which I will discuss later, participants generally agreed
that the ability to organize, bargain collectively, and participate in
labor organizations is an important principle to be retained in any
framework for reform. It was also suggested at the forum that unions must
be both willing and able to actively collaborate and coordinate with
management if unions are to be effective representatives of their members
and real participants in any human capital reform.

  DHS Confronts Many Challenges to Successful Implementation

With the issuance of the final regulations, DHS faces multiple challenges
to the successful implementation of its new human capital system. We
identified multiple implementation challenges at last year's hearing.
Subsequently, we reported that DHS's actions to date in designing its
human capital system and its stated plans for future work on its system
are helping to position the department for successful implementation.21
Nevertheless, DHS was in the early stages of developing the infrastructure
needed for implementing its new system. For more information on these
challenges, as well as on related human capital topics, see the
"Highlights" pages attached to this statement.

20National Treasury Employees Union v. Ridge, No. 1:05cv201 (D.D.C. filed
Jan. 27, 2005).

21GAO, Human Capital: DHS Faces Challenges in Implementing Its New
Personnel System, GAO-04-790 (Washington, D.C.: June 18, 2004).

We believe that these challenges are still critical to the success of the
new human capital system. In many cases, DHS has acknowledged these
challenges and made a commitment to address them in regulations. Today I
would like to focus on two additional implementation challenges- ensuring
sustained and committed leadership and establishing an overall
consultation and communication strategy-and then reiterate challenges we
previously identified, including providing adequate resources for
implementing the new system and involving employees and other stakeholders
in implementing the system.

                  Ensuring Sustained and Committed Leadership

As DHS and other agencies across the federal government embark on
largescale organizational change initiatives, such as the new human
capital system DHS is implementing, there is a compelling need to elevate,
integrate, and institutionalize responsibility for such key functional
management initiatives to help ensure their success.22 A Chief Operating
Officer/Chief Management Officer (COO/CMO) or similar position can
effectively provide the continuing, focused attention essential to
successfully completing these multiyear transformations.

Especially for such an endeavor as critical as DHS's new human capital
system, such a position would serve to

o 	elevate attention that is essential to overcome an organization's
natural resistance to change, marshal the resources needed to implement
change, and build and maintain the organizationwide commitment to new ways
of doing business;

o 	integrate this new system with various management responsibilities so
they are no longer "stovepiped" and fit it into other organizational
transformation efforts in a comprehensive, ongoing, and integrated manner;
and

o 	institutionalize accountability for the system so that the
implementation of this critical human capital initiative can be sustained.

22GAO, The Chief Operating Officer Concept and Its Potential Use as a
Strategy to Improve Management at the Department of Homeland Security,
GAO-04-876R (Washington, D.C.: June 28, 2004) and 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).

We have work underway at the request of Congress to assess DHS's
management integration efforts, including the role of existing senior
leadership positions as compared to a COO/CMO position, and expect to
issue a report on this work in the coming weeks.

Establishing an Overall Communication Strategy

Another significant challenge for DHS is to assure an effective and
ongoing two-way consultation and communication strategy that creates
shared expectations about, and reports related progress on, the
implementation of the new system. We have reported this is a key practice
of a change management initiative.23 DHS's final regulations recognize
that all parties will need to make a significant investment in
communication in order to achieve successful implementation of its new
human capital system. According to DHS, its communication strategy will
include global e-mails, satellite broadcasts, Web pages, and an internal
DHS weekly newsletter. DHS stated that its leaders will be provided tool
kits and other aids to facilitate discussions and interactions between
management and employees on program changes.

Given the attention over the regulations, a critical implementation step
is for DHS to assure a communication strategy. Communication is not about
just "pushing the message out." Rather, it should facilitate a two-way
honest exchange with, and allow for feedback from, employees, customers,
and key stakeholders. This communication is central to forming the
effective internal and external partnerships that are vital to the success
of any organization. Creating opportunities for employees to communicate
concerns and experiences about any change management initiative allows
employees to feel that their experiences are acknowledged and important to
management during the implementation of any change management initiative.
Once this feedback is received, it is important to consider and use this
solicited employee feedback to make any appropriate changes to its
implementation. In addition, closing the loop by providing information on
why key recommendations were not adopted is also important.

23GAO-03-669.

Providing Adequate Resources for Implementing the New System

OPM reports that the increased costs of implementing alternative personnel
systems should be acknowledged and budgeted for up front.24 DHS estimates
the overall costs associated with implementing the new DHS
system-including the development and implementation of a new pay and
performance system, the conversion of current employees to that system,
and the creation of its new labor relations board-will be approximately
$130 million through fiscal year 2007 (i.e., over a 4-year period) and
less than $100 million will be spent in any 12-month period.

We found that based on the data provided by selected OPM personnel
demonstration projects, direct costs associated with salaries and training
were among the major cost drivers of implementing their pay for
performance systems. Certain costs, such as those for initial training on
the new system, are one-time in nature and should not be built into the
base of DHS's budget. Other costs, such as employees' salaries, are
recurring and thus would be built into the base of DHS's budget for future
years.

We found that approaches the demonstration projects used to manage salary
costs were to consider fiscal conditions and the labor market and to
provide a mix of one-time awards and permanent pay increases. For example,
rewarding an employee's performance with an award instead of an equivalent
increase to base pay can reduce salary costs in the long run because the
agency only has to pay the amount of the award one time, rather than
annually. However, one approach that the demonstration projects used to
manage costs that is not included in the final regulations is the use of
"control points." We found that the demonstration projects used such a
mechanism-sometimes called speed bumps-to manage progression through the
bands to help ensure that employees' performance coincides with their
salaries and prevent all employees from eventually migrating to the top of
the band and thus increase costs.

According to the DHS regulations, its performance management system is
designed to incorporate adequate training and retraining for supervisors,
managers, and employees in the implementation and operation of the system.
Each of OPM's personnel demonstration projects trained employees on the
performance management system prior to implementation to make employees
aware of the new approach, as well as

24U.S. Office of Personnel Management, Demonstration Projects and
Alternative Personnel Systems: HR Flexibilities and Lessons Learned
(Washington, D.C.: September 2001).

periodically after implementation to refresh employee familiarity with the
system. The training was designed to help employees understand their
applicable competencies and performance standards; develop performance
plans; write self-appraisals; become familiar with how performance is
evaluated and how pay increases and awards decisions are made; and know
the roles and responsibilities of managers, supervisors, and employees in
the appraisal and payout processes.

Involving Employees and Other Stakeholders in Implementing the System

We reported in September 2003 that DHS's and OPM's effort to design a new
human capital system was collaborative and facilitated participation of
employees from all levels of the department.25 We recommended that the
Secretary of DHS build on the progress that had been made and ensure that
the communication strategy used to support the human capital system
maximize opportunities for employee and key stakeholder involvement
through the completion of design and implementation of the new system,
with special emphasis on seeking the feedback and buy-in of frontline
employees. In implementing this system, DHS should continue to recognize
the importance of employee and key stakeholder involvement. Leading
organizations involve employee unions, as well as involve employees
directly, and consider their input in formulating proposals and before
finalizing any related decisions.26

To this end, DHS's revised regulations have attempted to recognize the
importance of employee involvement in implementing the new personnel
system. As we discussed earlier, the final DHS regulations provide for
continuing collaboration in further development of the implementing
directives and participation on the Compensation Committee. The
regulations also provide that DHS is to involve employees in evaluations
of the human capital system. Specifically, DHS is to provide designated
employee representatives with the opportunity to be briefed and a
specified timeframe to provide comments on the design and results of
program evaluation. Further, employee representatives are to be involved
at the identification of the scope, objectives, and methodology to be used
in

25GAO, Human Capital: DHS Personnel System Design Effort Provides for
Collaboration and Employee Participation, GAO-03-1099 (Washington, D.C.:
Sept. 30, 2003).

26GAO, Human Capital: Practices that Empowered and Involved Employees,
GAO-01-1070 (Washington, D.C.: Sept. 14, 2001).

the program evaluation and in the review of draft findings and
recommendations.

  Framework for Governmentwide Human Capital Reform

DHS has recently joined some other federal departments and agencies, such
as the Department of Defense, GAO, National Aeronautics and Space
Administration, and the Federal Aviation Administration, in receiving
authorities intended to help them manage their human capital strategically
to achieve results. To help advance the discussion concerning how
governmentwide human capital reform should proceed, GAO and the National
Commission on the Public Service Implementation Initiative hosted a forum
in April 2004 on whether there should be a governmentwide framework for
human capital reform and, if so, what this framework should include.27
While there was widespread recognition among the forum participants that a
one-size-fits-all approach to human capital management is not appropriate
for the challenges and demands government faces, there was equally broad
agreement that there should be a governmentwide framework to guide human
capital reform. Further, a governmentwide framework should balance the
need for consistency across the federal government with the desire for
flexibility so that individual agencies can tailor human capital systems
to best meet their needs. Striking this balance is not easy to achieve,
but is necessary to maintain a governmentwide system that is responsive
enough to adapt to agencies' diverse missions, cultures, and workforces.

While there were divergent views among the forum participants, there was
general agreement on a set of principles, criteria, and processes that
would serve as a starting point for further discussion in developing a
governmentwide framework in advancing human capital reform, as shown in
figure 1.

27GAO and the National Commission on the Public Service Implementation
Initiative, Highlights of a Forum: Human Capital: Principles, Criteria,
and Processes for Governmentwide Federal Human Capital Reform, GAO-05-69SP
(Washington, D.C.: Dec. 1, 2004).

                 Figure 1: Principles, Criteria, and Processes

Principles that the government should retain in a framework for reform
because of their inherent, enduring qualities:

o  Merit principles that balance organizational mission, goals, and
performance objectives with individual rights and responsibilities

o  Ability to organize, bargain collectively, and participate through
labor organizations

o  Certain prohibited personnel practices

o  Guaranteed due process that is fair, fast, and final

Criteria that agencies should have in place as they plan for and manage
their new human capital authorities:

o  Demonstrated business case or readiness for use of targeted authorities

o  An integrated approach to results-oriented strategic planning and human
capital planning and management

o  Adequate resources for planning, implementation, training, and
evaluation

o  A modern, effective, credible, and integrated performance management
system that includes adequate safeguards to ensure equity and prevent
discrimination

Processes that agencies should follow as they implement new human capital
authorities:

o  Prescribing regulations in consultation or jointly with the Office of
Personnel Management

o  Establishing appeals processes in consultation with the Merit Systems
Protection Board

o  Involving employees and stakeholders in the design and implementation
of new human capital systems

o  Phasing in implementation of new human capital systems

o  Committing to transparency, reporting, and evaluation

o  Establishing a communications strategy

o  Assuring adequate training

Source: GAO.

As the momentum accelerates for human capital reform, GAO is continuing to
work with others to address issues of mutual interest and concern. For
example, to follow up on the April forum, the National Academy of Public
Administration and the National Commission on the Public Service
Implementation Initiative convened a group of human capital stakeholders
to continue the discussion of a governmentwide framework.28

Summary Observations	The final regulations that DHS has issued represent a
positive step towards a more strategic human capital management approach
for both DHS and the overall government, a step we have called for in our
recent High-Risk Series. Consistent with our observations last year, DHS's
regulations make progress towards a modern classification and compensation
system. DHS's overall efforts in designing and implementing its human
capital system can be particularly instructive for future human capital
reform. Nevertheless, regarding the implementation of the DHS system, how
it is done, when it is done, and the basis on which it is done can make
all the difference in whether it will be successful. That is why it is
important to recognize that DHS still has to fill in many of the details
on how it will implement these reforms. These details do matter and they
need to be disclosed and analyzed in order to fully assess DHS's proposed
reforms. We have made a number of suggestions for improvements the agency
should consider in this process. It is equally important for the agency to
ensure it has the necessary infrastructure in place to implement the
system, not only an effective performance management system, but also the
capabilities to effectively use the new human capital authorities and a
strategic human capital planning process. This infrastructure should be in
place before any new flexibilities are operationalized.

DHS appears to be committed to continue to involve employees, including
unions, throughout the implementation process, another critical ingredient
for success. Specifically, under DHS's final regulations, employee
representatives or union officials are to have opportunities to
participate in developing the implementing directives, as outlined under
the "continuing collaboration" provisions; hold four membership seats on
the Homeland Security Compensation Committee; and help in evaluations of
the human capital system. A continued commitment to a meaningful and
ongoing two

28See The National Commission on the Public Service Implementation
Initiative and The National Academy of Public Administration, A
Governmentwide Framework for Federal Personnel Reform: A Proposal
(Washington, D.C.: November 2004).

way consultation and communication strategy that allows for ongoing
feedback from employees, customers, and key stakeholders is central to
forming the effective internal and external partnerships that are vital to
the success of DHS's human capital system. It is critically important that
these consultation and communication processes be meaningful in order to
be both credible and effective. Finally, to help ensure the quality of
that involvement, sustained leadership in a position such as a COO/CMO
could help to elevate, integrate, and institutionalize responsibility for
the success of DHS's human capital system and other key business
transformation initiatives.

Mr. Chairman and Members of the Subcommittee, this concludes my prepared
statement. I would be pleased to respond to any questions that you may
have.

Contacts and	For further information, please contact Eileen Larence,
Acting Director, Strategic Issues, at (202) 512-6806 or [email protected].
Major contributors

Acknowledgements	to this testimony include Michelle Bracy, K. Scott
Derrick, Karin Fangman, Janice Latimer, Jeffrey McDermott, Naved Qureshi,
Lisa Shames, and Michael Volpe.

Appendix I

"Highlights" from Selected GAO Human Capital Reports

Appendix I "Highlights" from Selected GAO Human Capital Reports

February 25, 2004

HUMAN CAPITAL

Preliminary Observations on Proposed DHS Human Capital Regulations

Highlights of GAO-04-479T, testimony before subcommittees of the Senate
Committee on Governmental Affairs and the House Committee on Government
Reform

The creation of the Department of Homeland Security (DHS) almost one year
ago represents an historic moment for the federal government to
fundamentally transform how the nation will protect itself from terrorism.
DHS is continuing to transform and integrate a disparate group of agencies
with multiple missions, values, and cultures into a strong and effective
cabinet department. Together with this unique opportunity, however, also
comes significant risk to the nation that could occur if this
transformation is not implemented successfully. In fact, GAO designated
this implementation and transformation as high risk in January 2003.

Congress provided DHS with significant flexibility to design a modern
human capital management system. GAO reported in September 2003 that the
design effort to develop the system was collaborative and consistent with
positive elements of transformation. Last Friday, the Secretary of DHS and
the Director of the Office of Personnel Management (OPM) released for
public comment draft regulations for DHS's new human capital system. This
testimony provides preliminary observations on selected major provisions
of the proposed system. The subcommittees are also releasing

Human Capital: Implementing Pay for Performance at Selected Personnel
Demonstration Projects

(GAO-04-83) at today's hearing.

www.gao.gov/cgi-bin/getrpt?GAO-04-479T.

To view the full testimony statement, click on the link above. For more
information, contact J. Christopher Mihm at (202) 512-6806 or
[email protected].

The proposed human capital system is designed to be aligned with the
department's mission requirements and is intended to protect the civil
service rights of DHS employees. Many of the basic principles underlying
the DHS regulations are consistent with proven approaches to strategic
human capital management, including several approaches pioneered by GAO,
and deserve serious consideration. However, some parts of the system raise
questions that DHS, OPM, and Congress should consider.

Pay and performance management: The proposal takes another valuable step
towards results-oriented pay reform and modern performance management. For
effective performance management, DHS should use validated core
competencies as a key part of evaluating individual contributions to
departmental results and transformation efforts. Adverse actions and
appeals: The proposal would retain an avenue for employees to appeal
adverse actions to an independent third party. However, the process to
identify mandatory removal offenses must be collaborative and transparent.
DHS needs to be cautious about defining specific actions requiring
employee removal and learn from the Internal Revenue Service's
implementation of its mandatory removal provisions. Labor relations: The
regulations recognize employees' right to organize and bargain
collectively, but reduce areas subject to bargaining. Continuing to
involve employees in a meaningful manner is critical to the successful
operations of the department.

Once DHS issues final regulations for the human capital system, it will be

faced with multiple implementation challenges: DHS plans to implement the
system using a phased approach, however, nearly half of DHS civilian
employees are not covered by these regulations, including more than 50,000
Transportation Security Administration screeners. To help build a unified
culture, DHS should consider moving all of its employees under a single
performance management system framework. DHS noted that it estimates that
about $110 million will be needed to implement the new system in its first
year. While adequate resources for program implementation are critical to
program success, DHS is requesting a substantial amount of funding that
warrants close scrutiny by Congress. The proposed regulations call for
comprehensive, ongoing evaluations. Continued evaluation and adjustments
will help to ensure an effective and credible human capital system. DHS
has begun to develop a strategic workforce plan. Such a plan can be used
as a tool for identifying core competencies for staff for attracting,
developing, evaluating, and rewarding contributions to mission
accomplishment.

The analysis of DHS's effort to develop a strategic human capital
management system can be instructive as other agencies request and
implement new strategic human capital management authorities.

Appendix I "Highlights" from Selected GAO Human Capital Reports

Highlights of GAO-04-790, a report to congressional requesters

DHS was provided with significant flexibility to design a modern human
capital management system. Its proposed system has both precedent-setting
implications for the executive branch and farreaching implications on how
the department is managed. GAO reported in September 2003 that the effort
to design the system was collaborative and consistent with positive
elements of transformation. In February, March, and April 2004 we provided
preliminary observations on the proposed human capital regulations.

Congressional requesters asked GAO to describe the infrastructure
necessary for strategic human capital management and to assess the degree
to which DHS has that infrastructure in place, which includes an analysis
of the progress DHS has made in implementing the recommendations from our
September 2003 report.

DHS generally agreed with the findings of our report and provided more
current information that we incorporated. However, DHS was concerned about
our use of results from a governmentwide survey gathered prior to the
formation of the department. We use this data because it is the most
current information available on the perceptions of employees currently in
DHS and helps to illustrate the challenges facing DHS.

June 2004

HUMAN CAPITAL

DHS Faces Challenges in Implementing Its New Personnel System

To date, DHS's actions in designing its human capital management system
and its stated plans for future work on the system are helping to position
the department for successful implementation. Nonetheless, the department
is in the early stages of developing the infrastructure needed for
implementing its new human capital management system.

DHS has begun strategic human capital planning efforts at the headquarters
level since the release of the department's overall strategic plan and the
publication of proposed regulations for its new human capital management
system. Strategic human capital planning efforts can enable DHS to remain
aware of and be prepared for current and future needs as an organization.
However, this will be more difficult because DHS has not yet been
systematic or consistent in gathering relevant data on the successes or
shortcomings of legacy component human capital approaches or current and
future workforce challenges. Efforts are now under way to collect detailed
human capital information and design a centralized information system so
that such data can be gathered and reported at the departmentwide level.

DHS and Office of Personnel Management leaders have consistently
underscored their personal commitment to the design process. Continued
leadership is necessary to marshal the capabilities required for the
successful implementation of the department's new human capital management
system. Sustained and committed leadership is required on multiple levels:
securing appropriate resources for the design, implementation, and
evaluation of the human capital management system; communicating with
employees and their representatives about the new system and providing
opportunities for feedback; training employees on the details of the new
system; and continuing opportunities for employees and their
representatives to participate in the design and implementation of the
system.

In its proposed regulations, DHS outlines its intention to implement key
safeguards. For example, the DHS performance management system must comply
with the merit system principles and avoid prohibited personnel practices;
provide a means for employee involvement in the design and implementation
of the system; and overall, be fair, credible, and transparent. The
department also plans to align individual performance management with
organizational goals and provide for reasonableness reviews of performance
management decisions through its Performance Review Boards.

www.gao.gov/cgi-bin/getrpt?GAO-04-790.

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].

Appendix I "Highlights" from Selected GAO Human Capital Reports

March 2003

RESULTS-ORIENTED CULTURES

Creating a Clear Linkage between

Highlights of GAO-03-488, a report to Individual Performance and
congressional requesters

Organizational Success

The federal government is in a Public sector organizations both in the
United States and abroad have period of profound transition and
implemented a selected, generally consistent set of key practices for
faces an array of challenges and effective performance management that
collectively create a clear linkage- opportunities to enhance "line of
sight"-between individual performance and organizational success.

performance, ensure
accountability, and position the These key practices include the
following.

nation for the future. High
performing organizations have 1. Align individual performance expectations
with organizational
found that to successfully goals. An explicit alignment helps individuals
see the connection between

transform themselves, they must their daily activities and organizational
goals.

often fundamentally change their
cultures so that they are more 2. Connect performance expectations to
crosscutting goals. Placing

results-oriented, customer-focused, an emphasis on collaboration,
interaction, and teamwork across and collaborative in nature. To
organizational boundaries helps strengthen accountability for
results.foster such cultures, these

organizations recognize that an 3. Provide and routinely use performance
information to track

effective performance management organizational priorities. Individuals
use performance information to
system can be a strategic tool to
drive internal change and achieve manage during the year, identify
performance gaps, and pinpoint
desired results. improvement opportunities.

Based on previously issued reports 4. Require follow-up actions to address
organizational priorities. By

on public sector organizations' requiring and tracking follow-up actions
on performance gaps, organizations

approaches to reinforce individual underscore the importance of holding
individuals accountable for making accountability for results, GAO
progress on their priorities. identified key practices that federal

agencies can consider as they 5. Use competencies to provide a fuller
assessment of performance.

develop modern, effective, and Competencies define the skills and
supporting behaviors that individuals
credible performance management need to effectively contribute to
organizational results.
systems.

6. Link pay to individual and organizational performance. Pay, incentive,
and reward systems that link employee knowledge, skills, and contributions
to organizational results are based on valid, reliable, and transparent
performance management systems with adequate safeguards.

7. Make meaningful distinctions in performance. Effective performance
management systems strive to provide candid and constructive feedback and
the necessary objective information and documentation to reward top
performers and deal with poor performers.

8. Involve employees and stakeholders to gain ownership of performance
management systems. Early and direct involvement helps increase employees'
and stakeholders' understanding and ownership of the system and belief in
its fairness.

www.gao.gov/cgi-bin/getrpt?GAO-03-488.

To view the full report, including the scope 9. Maintain continuity during
transitions. Because cultural

and methodology, click on the link above. transformations take time,
performance management systems reinforce
For more information, contact J. Christopher
Mihm at (202) 512-6806 or [email protected]. accountability for change
management and other organizational goals.

Appendix I "Highlights" from Selected GAO Human Capital Reports

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