Questions for the Record Related to the Department of Defense's  
National Security Personnel System (14-JUN-05, GAO-05-771R).	 
                                                                 
On April 12, 2005, the Comptroller General testified before	 
Congress at a hearing on "NSPS: The New Department of Defense	 
Civilian Personnel System--Reaching Readiness." This letter	 
responds to a request that GAO provide answers to questions for  
the record. The questions covered major areas of concern for the 
Department of Defense's National Security Personnel System	 
(NSPS). 							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-771R					        
    ACCNO:   A26638						        
  TITLE:     Questions for the Record Related to the Department of    
Defense's National Security Personnel System			 
     DATE:   06/14/2005 
  SUBJECT:   Accountability					 
	     Agency missions					 
	     Employee relations 				 
	     Employees						 
	     Federal agency reorganization			 
	     Human capital					 
	     Internal controls					 
	     National security personnel system 		 
	     Pay bands						 
	     Performance appraisal				 
	     Performance management				 
	     Performance measures				 
	     Strategic planning 				 
	     Performance-based pay				 
	     DOD National Security Personnel System		 

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GAO-05-771R

United States Government Accountability Office Washington, DC 20548

June 14, 2005

The Honorable Jon C. Porter
Chairman
Subcommittee on the Federal Workforce

and Agency Organization Committee on Government Reform House of
Representatives

Subject: Questions for the Record Related to the Department of Defense's
National Security Personnel System

On April 12, 2005, I testified before your Subcommittee at a hearing on
"NSPS: The New Department of Defense Civilian Personnel System-Reaching
Readiness."1 This letter responds to your request that I provide answers
to questions for the record. The questions, along with my responses,
follow.

Regulations versus "Implementing Issuances"

In your testimony, you noted the lack of detail in the proposed
regulations. The proposed regulations for the NSPS allow DOD to address
the specific details of the system through "implementing issuances."

1.	Which specific subjects of the NSPS regulations should be included in
the final regulations?

In our recent testimonies on the proposed NSPS regulations, we noted
several issues that DOD will need to define in more detail than is
currently provided. For example, the proposed NSPS regulations permit an
internal DOD review of initial decisions issued by Merit Systems
Protection Board (MSPB) adjudicating officials. However, the proposed
regulations do not offer additional details on the department's internal
review process, such as how the review will be conducted and who will
conduct them. As we noted in our testimonies, an internal agency review
process this important should be addressed in the regulations rather than
in an implementing directive to ensure adequate transparency and employee
confidence in the process.

1 GAO, Human Capital: Preliminary Observations on Proposed Department of
Defense National Security Personnel System Regulations, GAO-05-517T
(Washington, D.C.: Apr. 12, 2005).

Importantly, the DOD regulations do not provide that appropriate systems
(e.g., modern performance appraisal systems that are linked to the
agencies' strategic plan and desired outcomes) and key safeguards to help
assure consistency and prevent abuse must be in place before certain
flexibilities (e.g., additional pay for performance) are finalized. In
this regard, although DOD's proposed regulations provide some safeguards
to ensure fairness and guard against abuse, additional safeguards should
be developed and details offered on how DOD would (1) promote consistency
and provide general oversight of the performance management system to help
ensure it is administered in a fair, credible, and transparent manner, and
(2) incorporate predecisional internal safeguards that are implemented to
help achieve consistency and equity, and ensure nondiscrimination and
nonpoliticization of the performance management process.

2. Which aspects are appropriate for "implementing issuances"?

Going forward, DOD must ensure that it has the appropriate systems and
safeguards to make effective use of its new authorities. However, as
discussed above, many of the details of DOD's system have not been
addressed in the proposed regulations. These details do matter. They
should be addressed in the final regulations and then further defined in
implementing issuances.

Deputy Secretary of Defense for Management

In your testimony you recommend that DOD appoint a Deputy Secretary of
Defense for Management to guide the transition to the NSPS. In their oral
testimony, Mr. Abell and Mr. Nesterczuk indicated that it would not be
helpful to have a divided leadership structure for the transition to the
NSPS and that an additional layer of leadership would be a hindrance.

1. What is your response to Mr. Abell's and Mr. Nesterczuk's concerns?

As we noted in our statement, as DOD embarks on large-scale business
transformation efforts, like NSPS, we believe that the complexity and
long-term nature of these efforts require the development of an executive
position capable of providing strong and sustained business transformation
and change management leadership across the department that can span a
number of years and various

2

administrations. In recent testimony on business transformation at DOD, we
further noted that a Chief Management Official (CMO) is essential for
providing sustained leadership needed to achieve lasting transformation of
DOD's many business

3

systems. Given the systemic nature of the business transformation
challenges that DOD faces, we believe that it is prudent and appropriate
for Congress to enact legislation to provide for a CMO at DOD.
Importantly, our proposed CMO position does not represent a new layer;
rather, it represents a division of responsibilities of

2 GAO-05-517T.

3 GAO, Defense Management: Key Elements Needed to Successfully Transform
DOD Business Operations, GAO-05-629T (Washington, D.C.: Apr. 28, 2005).

the current Deputy position. Just as the CMO would need to focus full-time
on business transformation, we believe that the day-to-day management
functions are so demanding that it is difficult for the related officials
to maintain the oversight, focus, and momentum needed to implement and
sustain needed reforms of DOD's overall business operations. This is
particularly evident, given the demands that the Iraq and Afghanistan
postwar reconstruction activities and the continuing war on terrorism have
placed on current leaders. Likewise, the breadth and complexity of the
problems and their overall level within the department preclude the under
secretaries, such as the DOD Comptroller, from asserting the necessary
authority over selected players and business areas while continuing to
fulfill their other responsibilities.

2. How significant is the risk that the transition to NSPS could fail if
DOD does not appoint a Deputy Secretary of Defense for Management?

Failure to have such a position will serve to increase the related risk.
However, the CMO position will be critical to the success of DOD's overall
business transformation effort. Specifically, given DOD's size and
mission, it is one of the largest and most complex organizations in the
world to manage effectively. While DOD maintains military forces with
unparalleled capabilities, it continues to confront pervasive, decades-old
management problems related to its business operations, which include
outdated organizational structures, systems, and processes that support
these forces. These management weaknesses cut across all of DOD's major
business areas, such as human capital management, including the
department's NSPS initiative; the personnel security clearance program;
support infrastructure management; business systems modernization;
financial management; weapon systems acquisition; contract management; and
selected supply chain management issues. All of these areas are on GAO's
high-risk list of major government programs and operations that either
need urgent attention and transformation to ensure that the U.S.
government functions in the most economical, efficient, and effective
manner possible, or that are at high risk because of their greater
vulnerability to fraud, waste, abuse, and mismanagement. This year, DOD's
overall approach to business transformation was added because of our
concerns over DOD's lack of adequate management responsibility and
accountability, along with the absence of a strategic, departmentwide, and
integrated business transformation plan.

As noted in our recent testimony on DOD's business transformation efforts,
over 30 years ago, the Secretary of Defense asked Congress to establish an
additional Deputy Secretary of Defense for many of the same reasons we are
proposing that a CMO is needed.4 In a letter to Congress, the then
Secretary of Defense stated that the most efficient management of DOD
resources could not be achieved with just the Secretary and Deputy
Secretary, and that DOD deficiencies were in large measure due to
insufficient senior management attention to the department's affairs.

4 GAO-05-629T.

3. What specific authorities should the Secretary grant to the Deputy
Secretary of Defense for Management so that the new position can exercise
effective leadership over the business transformation process?

As noted in recent testimony on business transformation at the department,
the CMO would have overall responsibility and accountability for DOD's
overall business transformation and change management effort, while other
DOD officials would still

5

be responsible for managing their daily business operations. The position
would divide and institutionalize the current functions of the Deputy
Secretary of Defense into a Deputy Secretary who, as the alter ego of the
Secretary, would focus on policyrelated issues such as military
transformation, and a Deputy Secretary of Defense for Management (the
CMO), who would be responsible and accountable for the overall business
transformation effort and would serve full-time as the strategic
integrator of DOD's business transformation efforts. For example, the CMO
would be responsible and accountable for developing and implementing a
strategic and integrated plan for DOD's overall business transformation
efforts.

4.	How can DOD ensure that the position of Deputy Secretary of Defense for
Management does not become just another unnecessary layer of bureaucracy?

As discussed above, the CMO would be responsible and accountable for
planning, integrating, and executing the overall business transformation
effort. Therefore, the CMO would not assume the responsibilities of the
undersecretaries of defense, the service secretaries, or other DOD
officials for the day-to-day management of business activities. Therefore,
in our view, creating a CMO would not be adding another hierarchical layer
to oversee the day-to-day management of the department. Importantly, the
proposed CMO position would represent a division of the current Deputy
Secretary's responsibilities rather than a new layer or level.

Alignment of Performance and Organizational Goals

1. What specific procedures would you suggest to ensure that individual
performance expectations align with DOD's mission and strategic goals?

As stated in our recent testimony on federal agencies' use of human
capital flexibilities, we have advocated that the federal government needs
to fundamentally rethink its approach to performance management, better
linking individual, unit, and organizational performance and reward
individuals according to their skills,

                                       6

knowledge, performance and contributions. Shifting the orientation of
individual performance expectations and accountability systems from an
adherence to process and the completion of activities to a greater focus
on contributions to results will require a cultural transformation in most
federal agencies, including DOD. One way

5 GAO-05-629T.

6 GAO, Human Capital: Agencies Need Leadership and the Supporting
Infrastructure to Take Advantage of New Flexibilities, GAO-05-616T
(Washington, D.C.: Apr. 21, 2005).

to embed a results-orientation is to align individual employee performance
expectations with agency goals so that individuals understand the
connection between their daily activities and their organization's overall
success. Highperforming organizations have recognized that a key element
of a fully successful performance management system is to create a "line
of sight" that shows how individual responsibilities can contribute to
organizational goals. A first step to this end is to align the performance
expectations, appraisals, and pay of top leadership with organizational
goals and results achieved, and then cascade those expectations down to
lower organizational levels. As we noted in our testimony, we believe that
DOD should require the use of core competencies to communicate to
employees what is expected of them on the job. 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.

2. How could employees participate in this process?

Based on our review of other agency efforts, we have found that involving
employees in planning and sharing performance information can help
employees understand what the organization is trying to accomplish and how
it is progressing in that direction.7 Involving employees in the planning
process helps to develop agency goals and objectives that incorporate
insights about operations from a front-line perspective, as well as
increases employees' understanding and acceptance of organizational goals
and objectives. Involving front-line employees in the goal-setting process
also helps create a clear "line of sight" throughout the organization so
that everyone understands what the organization is trying to achieve and
the goals it seeks to reach.

As discussed above, we have encouraged DOD to establish a documented set
of core competencies to help provide reasonable consistency and clearly
communicate to employees what is expected of them. High-performing
organizations use validated core competencies as a key part of evaluating
individual contributions to organizational results. If performance
expectations are based on core competencies, then employees can be
involved in the validation of the competencies to ensure that they are
both appropriate and accepted.

Employee Involvement

You have expressed concerns that the NSPS does not identify a process for
continuing involvement of employees in the design and implementation of
the NSPS. The proposed regulations for the DHS human resources system
contained provisions for a Performance Review Board (PRB). The final
regulations for the DHS human resource system provide a place for
employees to participate in pay decisions through the establishment of a

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

Compensation Committee rather than a PRB. The proposed regulations for
NSPS do not include specific provisions establishing either a Compensation
Committee or a Performance Review Board.

1. Would you recommend the creation of a Compensation Committee or a
Performance Review Board for NSPS?

We believe DOD should define, in more detail than is currently provided,
how it plans to (1) promote consistency and provide general oversight of
the performance management system to help ensure that it is administered
in a fair, credible, and transparent manner, and (2) incorporate
predecisional internal safeguards that are implemented to help achieve
consistency and equity, and ensure nondiscrimination and nonpoliticization
of the performance management process. The creation of a Performance
Review Board or Compensation Committee could promote consistency and
provide general oversight of the performance management system. However,
the key will be to create a board or committee that is independent of line
management and review such matters as the establishment and implementation
of the performance appraisal system and later, performance rating
decisions, pay determinations, and promotion actions before they are
finalized to ensure they are merit based.

2.	Would such institutions for internal review of decisions improve the
fairness, credibility, and transparency of the NSPS?

Yes, these kinds of institutional oversight mechanisms would improve the
fairness, credibility, and transparency of NSPS. However, DOD also needs
to assure reasonable transparency and provide appropriate accountability
mechanisms in connection with the results of the performance management
process. This can include publishing overall results of performance
management and pay decisions while protecting individual confidentiality
and reporting periodically on internal assessments and employee survey
results relating to the performance management system.

Core Competencies

One concern you have with the new DHS performance management system is
that it does not require core competencies to be in writing. Similarly,
the proposed regulations on NSPS do not provide that core competencies be
in writing.

1. Assuming that you also think the NSPS regulations should require that
core competencies be issued in writing, do you see the value for not
having any expectations in writing?

To help enhance credibility and fairness and avoid problems, some sort of
written documentation of performance expectations is appropriate. Core
competencies and their performance standards that are documented in
writing help to ensure the

transparency, consistency, and clarity in communicating performance
expectations to the employee.

Pay and Performance

The proposed regulations for NSPS provide for the establishment of control
points within a pay band to limit increases in basic pay. However, in the
final regulations for DHS, control points were eliminated because DHS and
OPM believed that control points are at odds with pay-for-performance. In
your written testimony, you indicate that control points can be useful.

1.	Are control points a necessary part of the NSPS pay-for-performance
rules?

As noted in our recent testimonies on DOD's proposed regulations, the use
of control points to manage employees' progression through the bands can
help to ensure that their performance coincides with their salaries and
that only the highest performers

8

move into the upper range of the pay band, thereby controlling salary
costs.

2. If so, how do you respond to OPM's concern?

Because movement through the pay band is based on performance, employees
who are above average performers should progress through the pay band more
quickly than under the General Schedule. Establishing control points
within each band is one method of preventing below average employees from
eventually migrating to the top of the pay band, and thus increasing
salary costs.

Labor-Management Relations

Labor-management disputes will be handled by an internal National Security
Labor Relations Board (NSLRB) whose three members will be appointed by the
Secretary of Defense. Some have voiced concerns over the independence of
the Board, fearing that the members will act from a political position
rather than from a neutral one.

1.	Would the appointment of members of the NSLRB for a fixed term improve
the independence of the Board?

The proposed NSPS regulations would establish the NSLRB that would consist
of members appointed to fixed terms of 3 years. Increasing the initial
term for Board members beyond 3 years could potentially bolster the actual
or perceived independence of the Board, but such an action must be weighed
against the willingness of prospective members to commit to long-term
service on the Board and the need for Board member accountability.
Nevertheless, the proposed NSPS

8 GAO, Human Capital: Preliminary Observations on Proposed DOD National
Security Personnel System Regulations, GAO-05-432T (Washington, D.C.: Mar.
15, 2005).

regulations provide for other means to foster independence and
impartiality of the Board, including staggered term appointments for
members and some limited conditions for removal of a member. For example,
appointments of the initial Board members will be for terms of 1, 2, and 3
years. The Secretary of Defense may extend the term of any member beyond 3
years when necessary to provide for an orderly transition and/or appoint
the member for up to two additional 1-year terms.

2.	Other than allowing labor organization participation in the appointment
of Board members, how could the independence of the Board be enhanced?

The Board can strengthen its independence and impartiality through a
commitment to transparency, reporting, and periodic evaluation, which can
be critical processes in

                                       9

ongoing human capital reform efforts. Through regular and public reporting
on its activities and the results of its adjudications, the Board could
demonstrate to DOD's employees, labor organizations, and others that it is
carrying out its duties in a fair and impartial manner. This reporting
would likewise aid in promoting and facilitating formal oversight and
evaluations of the Board's activities as well as DOD's overall human
resources management system.

DOD could further enhance the independence and impartiality of the Board
through strengthening the appointment and removal processes of Board
members. This could include (1) a nomination panel that reflects input
from appropriate parties and a reasonable degree of balance among
differing views and interests in the composition of the Board to ensure
credibility, (2) stringent standards for removal, and (3) appropriate
notification to key stakeholders in the event that a Board member is
removed.

3. What value does the internal NSLRB bring to DOD?

In evaluating the merits of creating a separate NSLRB, DOD and OPM noted
that they put a high premium on the opportunity to establish a NSLRB whose
members would have a deep understanding of and an appreciation for the
unique challenges the department faces in carrying out its national
security mission. As we noted in our testimonies on the proposed NSPS
regulations, the NSLRB would largely replace the Federal Labor Relations
Authority. However, until the NSLRB has been established and has
functioned as an internal DOD labor relations board, we cannot determine
what value the proposed Board might bring to DOD.

4.	Will the NSLRB streamline the process or just add another layer of
unneeded bureaucracy?

9 GAO 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).

Until the NSLRB has been established and it has developed its processes
and procedures, we cannot comment on whether the NSLRB would streamline
the process or not.

Adverse Actions and Appeals

The appeals process that the proposed regulations would establish is
rather complex. For example, after an MSPB administrative judge issues an
initial MSPB decision in an adverse action appeal, DOD may reconsider the
administrative judge's decision and modify or reverse the initial MSPB
decision. S: 9901.807(k)(8)(iii)(A). Similarly, "[w]here the Department
determines that the initial [MSPB] decision has a direct and substantial
adverse impact on the Department's national security mission, or is based
on an erroneous interpretation of law, Governmentwide rule or regulation,
or [the NSPS regulations], [DOD may] issue a final DOD decision modifying
or reversing that initial decision." S: 9901.807(k)(8)(iii)(B). Further,
DOD may decide that the initial decision of an MSPB administrative judge
should serve as a precedential decision. S: 9901.807(k)(8)(iii)(C).

1.	Are the provisions of the proposed regulations that allow DOD to review
initial MSPB decisions consistent with an independent external appeals
process?

Although the proposed NSPS regulations describe when DOD may review an
initial MSPB decision, the regulations do not provide any detail as to
how, who, or what basis DOD will process these reviews. Until DOD provides
further information, we are unable to make any observations about the
independence of this review process.

The proposed NSPS regulations do provide employees and OPM with the
ability to appeal a final DOD decision issued under S: 9901.807(k)(8)(iii)
to the full MSPB. Further, an employee or the Secretary of Defense may
seek judicial review of a final order or decision of the MSPB.

2. Do you see any pitfalls with this proposed appeals process?

Our answer to question 1 above also applies to this question.

For additional information on our work on human capital issues at DOD,
please contact me on 512-5500 or Derek B. Stewart, Director, Defense
Capabilities and

Management on 512-5559 or [email protected], or Eileen Larence, Director,
Strategic Issues on governmentwide human capital issues at 512-6510 or
[email protected].

David M. Walker Comptroller General of the United States

(350717)

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