Post-Hearing Questions for the Record Related to the Department  
of Defense's National Security Personnel System (NSPS)		 
(24-MAR-06, GAO-06-582R).					 
                                                                 
On November 17, 2005, the Comptroller General testified before	 
the Senate Committee on Homeland Security and Governmental	 
Affairs at a hearing entitled: "From Proposed to Final: 	 
Evaluating the Regulations for the National Security Personnel	 
System." The Comptroller General responded to questions regarding
labor relations for unique segments of the workforce, employee	 
involvement and representation, system evaluation, impact on	 
veterans, safeguarding of teamwork and fairness, pay and	 
performance standards, and safeguards against abuse.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-582R					        
    ACCNO:   A49997						        
  TITLE:     Post-Hearing Questions for the Record Related to the     
Department of Defense's National Security Personnel System (NSPS)
     DATE:   03/24/2006 
  SUBJECT:   Compensation					 
	     Employees						 
	     Federal regulations				 
	     Labor relations					 
	     Merit compensation 				 
	     National security personnel system 		 
	     Performance management				 
	     Performance measures				 
	     Program evaluation 				 
	     Program implementation				 
	     DOD National Security Personnel System		 

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GAO-06-582R

     

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March 24, 2006

The Honorable Susan M. Collins

Chairman

The Honorable Joseph I. Lieberman

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

Subject: Post-Hearing Questions for the Record Related to the Department
of

Defense's National Security Personnel System (NSPS)

On November 17, 2005, I testified before your Committee at a hearing
entitled: "From Proposed to Final: Evaluating the Regulations for the
National Security Personnel System".1 This letter responds to your
requests for my response to questions for the record.

Questions from Senator John Warner

1. The civilian mariners have a long tradition of supporting our military
forces-operating at the call of a combatant commander on Navy
vessels-carrying combat equipment and supplies to fighting forces during
World War II, Korea, Vietnam and our current military operations. They
also have a unique legal status as excepted employees-whose compensation
is tied to prevailing wage rates for commercial crews.

To what extent did the Department examine the appropriateness of the NSPS
authorities governing labor relations for certain unique segments of the
workforce, such as the civilian mariners?

In supplementary information to the final regulations, DOD and OPM
responded to comments suggesting that certain groups of employees,
including teachers, public safety employees, civilian mariners, be
excluded from the labor relations system. In evaluating the merits of
excluding these groups of employees from the labor relations system, DOD
and OPM noted that the Department considered the employees' unique
characteristics but could find no compelling argument that this particular
group should not be covered by the new system.

1GAO, Human Capital: Observations on Final Regulations for DOD's National
Security Personnel System, GAO-06-227T (Washington, D.C.: Nov. 17, 2005).

Is legislation needed to permit the Secretary to exempt any DOD unit from
the labor relations provisions if the Secretary thought it necessary to do
so?

We understand that DOD's interpretation of section 9902(m)(8) of Title 5
is that legislation would be needed to allow the Secretary of Defense to
exempt any unit from the labor relations system. If this is DOD's
position, then clarifying legislation would be necessary.

2. The GAO, as part of its ongoing review of the Department's
implementation efforts, has emphasized the importance of employee buy-in
to the new system, and also of evaluating its success throughout
implementation.

What are the specific mechanisms that will be in place for continuous
employee involvement, and for evaluation of the NSPS system?

As we noted in our statement, DOD faces a significant challenge in
involving-and continuing to involve-its employees, employee
representatives, and other stakeholders in implementing NSPS. DOD's final
regulations, while providing for continuing collaboration with employee
representatives, do not identify a process for the continuing involvement
of employees and other key stakeholders in implementation of NSPS. DOD's
final NSPS regulations on the collaboration process, among other things,
would permit the Secretary of Defense to determine (1) the number of
employee representatives allowed to engage in the collaboration process,
and (2) the extent to which employee representatives are given an
opportunity to discuss their views with and submit written comments to DOD
officials. In addition, DOD's final regulations indicate that nothing in
the continuing collaboration process will affect the right of the
Secretary of Defense to determine the content of implementing guidance and
to make this guidance effective at any time. DOD's final regulations will
give designated employee representatives an opportunity to be briefed and
to comment on the design and results of the new system's implementation.
However, the active, visible, and continuous involvement of top key
players, including the Secretary and Deputy Secretary of Defense, the
military services' secretaries, and presidents of the employee labor
unions will be a major factor in determining whether such efforts will be
meaningful, successful, and credible.

Our prior statement and work also indicate that evaluating the effect of
NSPS will be an ongoing challenge for DOD. As we noted in our statement,
DOD's final regulations indicate that DOD will evaluate the regulations
and their implementation. In our July 2005 report on DOD's efforts to
design NSPS, we recommended that DOD develop procedures for evaluating
NSPS that contain results-oriented performance measures and reporting
requirements.2 We also recommended that these evaluation procedures could
be broadly modeled on the evaluation requirements of the OPM demonstration
projects. If the department follows through with this effort, we believe
that it will be responsive to our recommendation.

2GAO, Human Capital: DOD's National Security Personnel System Faces
Implementation Challenges, GAO-05-730 (Washington, D.C.: July 14, 2005).

How will the Department know whether or not the new system is "getting it
right"?

Our answer to question 2 above regarding evaluating the effect of NSPS
applies to this question.

3. The level of employee and employee representative participation will
help determine the success of this personnel system for DOD, and
ultimately, possible extensions throughout the federal government. GAO
Comptroller General Walker underscored the need for DOD to continue to
involve employees, including employee representatives, throughout the
implementation process. The "implementing issuance" process, which remains
under the sole authorization of the Secretary of Defense and other
principal partners, will provide the ultimate framework and details for
important aspects of implementing NSPS. While final regulations specify
that employee representatives will have the opportunity to participate in
this process, could you elaborate on some of the ways you will seek to
request and include suggestions from employees and their representatives
in the implementing issuances?

By including employees and their representatives in the planning process,
organizations can improve related policies and processes, increase their
acceptance within the workforce and minimize any potential adverse morale
implications. For NSPS to be a successful transformation, it must involve
DOD employees and their representatives from the beginning of the process
in order to obtain their input and acceptance, and hopefully their
ownership of the changes that are occurring within the department.
Employee involvement strengthens the transformation process by including
frontline perspective and experiences. Further employee involvement helps
to create the opportunity to establish new networks and break down
existing organizational silos, increase employees' understanding and
acceptance of organizational goals and objectives, gain ownership for new
policies and procedures, and reduce related implementation risks.

Our prior work also indicates that involving employees and other
stakeholders helps to improve overall confidence and belief in the
fairness of the system, enhance their understanding of how the system
works, and increase their understanding and ownership of organizational
goals and objectives. Organizations have found that the inclusion of
employees and their representatives needs to be meaningful, not just pro
forma. At GAO, to obtain direct feedback from employees, we created the
elected Employee Advisory Council (EAC) to serve as an advisory body to
the Comptroller General and other senior executives on a range of
management and employee issues. Comprising employees who represent a
cross-section of the agency, the EAC's participation is an important
source of front-end input and feedback on our human capital and other
major management initiatives. Specifically, EAC members convey the views
and concerns of the groups they represent, while remaining sensitive to
the collective best interest of all GAO employees; propose solutions to
concerns raised by employees; provide input to and comment on GAO
policies, procedures, plans, and practices; and help to communicate
management's issues and concerns to employees while also relaying
employees' comments and concerns to management.

We have found that organizations undergoing a transformation should
establish a communications strategy that creates shared expectations and
seeks to genuinely involve stakeholders in the process. As we have noted
in our prior testimonies on DOD's human resources management system, it
will face multiple implementation challenges that include establishing
overall communications strategies and involving employees in implementing
the new systems. We believe that one of the most relevant implementation
steps is for DOD to enhance two-way communication between employees,
employee representatives, and management, including enhancing
communication between top political appointees and labor leaders. To
enhance communications, there needs to be visible and ongoing involvement
of a number of top-level DOD leaders, including the Secretary and Deputy
Secretary of Defense, and the military services' secretaries. Frequent and
timely communication cultivates a strong relationship with management and
helps gain employee ownership for a transformation like NSPS. But
communication is not about just "pushing the message out" or seeking
information without any meaningful response. It should facilitate a
two-way honest exchange with and allow feedback from employees, employee
representatives, customers, and stakeholders. Once employee feedback is
received, it is important to acknowledge, consider, and use it to make any
appropriate changes to the implementation of the transformation.

4. As Chairman of the Senate Armed Services Committee and as a veteran of
World War II and the Korean War, I have a profound respect and gratitude
for our nation's veterans. During my 27 years in the Senate, I have
supported efforts to provide veterans with employment opportunities in the
federal government. Concerns have been expressed that the final
regulations modify the current rules governing workforce reshaping, and
consequently could negatively impact DOD's veteran employees. What
assurance can you provide my colleagues and I that the changes will not
have a detrimental impact on veterans?

While GAO cannot provide any assurance that the final NSPS regulations
will not have a detrimental impact on veterans, we note that the
regulations continue to give veterans' preference the same priority in the
event of a reduction-in-force (RIF) as under current regulations.

5. During my service as Secretary of the Navy-during which I was
privileged to have some 650,000 civilian employees working side by side
with the uniformed Navy, - I valued very highly the sense of teamwork
between the civilian and uniformed members of the United States Navy.
Teamwork is an intrinsic military value, in my judgment, and essential to
mission accomplishment. Some have been concerned that NSPS could undermine
that sense of teamwork by increasing the competition between individuals
for recognition of their performance. How can we safeguard this essential
element of national service-teamwork-as we move forward in changing the
personnel systems of the Department of Defense?

Senior executives need to lead the way to transform their agencies'
cultures to be more results-oriented, customer focused, and collaborative
in nature. Performance management systems can help manage and direct this
process. As public sector organizations shift their focus of
accountability from outputs to results, they have recognized that the
activities needed to achieve those results often transcend specific
organizational boundaries. Consequently, organizations that focus on
collaboration, interaction, and teamwork across organizational boundaries
are increasingly critical to achieve results. High performing
organizations use their performance management systems to strengthen
accountability for results, specifically by placing greater emphasis on
competencies and other factors that promote teamwork and collaboration to
achieve desired organizational results.

6. In preparation for a hearing of the Armed Services Committee which I
chaired in April, 2005, I asked my good friend John Gage to whittle down
the scores of issues that he identified with the draft regulations to a
few flashpoint issues-a handful of things that had the highest priority
from his perspective. He did that, and in his testimony to the SASC on
April 14, 2005, identified six "flashpoints" of concern:

           1. The scope of bargaining
           2. Composition of the National Security Relations Board
           3. The standard for mitigation of adverse actions by the Merit
           Systems Protection Board
           4. The requirement for written standards for employee performance
           5. A general lowering of pay for the DOD civilian workforce; and
           6. Procedures for identifying who will be affected by a Reduction
           in Force.

It is my understanding that the final regulations reflect progress on some
of these issues. How far has the Department come in addressing these
issues to ensure the success of NSPS?

Importantly, DOD should move expeditiously to resolve the appeals issue,
since it will be critical to the effective, credible, and fair
implementation of any major classification, compensation and performance
management, and reduction-in-force changes. John Gage is in the best
position to judge if his concerns are being addressed. However, as you
noted, the final regulations reflect progress on some of the issues John
Gage identified as flashpoints. However, 10 federal labor unions filed
suit last fall challenging the final NSPS regulations on several grounds.
On February 27, 2006, the U.S. District Court for the District of Columbia
found that DOD was authorized to establish a labor relations system that
differed from the federal labor relations system under Chapter 71 of title
5 of the U.S. Code, and that DOD satisfied their statutory obligation to
collaborate with the unions.3 The court, however, ruled that the final
NSPS regulations do not ensure that employees can bargain collectively.
The court also ruled that the proposed internal labor relations board at
DOD is not an "independent third party" as required by the NSPS
authorizing legislation and that the proposed employee appeals process
does not provide fair treatment to DOD employees. The court permanently
enjoined DoD from implementing the parts of the final NSPS regulations
addressing adverse actions, appeals, and labor relations. At this point,
DOD and OPM officials are continuing to work with the Department of
Justice to determine their next steps relative to the court's decision. As
such, while DOD can implement the performance management, compensation and
classification, staffing, and workforce shaping portions of the
regulation, the regulations on the scope of bargaining, composition of the
National Security Labor Relations Board, and the standard for mitigation
of adverse actions by the Merit Systems Protection Board may not move
forward.

3American Federation of Government Employees, AFL-CIO, et. al. v. Rumsfeld
et al, No. 05-2183, 2006 U.S. Dist. LEXIS 7068 (D.D.C. Feb. 27, 2006).

In response to public comments to its proposed regulations and feedback
obtained during the meet and confer process with employee representatives,
DOD modified the proposed regulations, so that the final regulations state
that the basic performance expectations should be provided to employees in
writing.

Similar to the proposed regulations, DOD's final regulations could not
reduce employees' basic rates of pay when converting to pay bands.
However, employees' compensation may increase at a rate higher or lower
than under the current compensation system because under NSPS compensation
is designed to be (1) market-based, with consideration of local market
conditions to set pay rates, and (2) more performance-oriented.

Similar to the proposed regulations, the final NSPS regulations allow DOD
to reduce, realign, and reorganize the department's workforce through
revised reduction-in-force (RIF) procedures. In a change from the proposed
regulations, employees serving in an initial probationary period have a
lower retention standing than career employees (i.e., permanent will be
listed first, followed by employees serving an initial probationary
period, and then followed by employees on temporary appointments). In
another change, the final regulations reflect the use of more than one
year's performance ratings in placing employees on the retention list.

Questions from Senator Joseph Lieberman

Downward pressure on pay levels.

John Gage in his written testimony expresses concern that the NSPS system
will create downward pressure on DOD civilian pay. Are there mechanisms
that you could suggest to assure that pay levels are adequate for employee
recruitment and retention and to truly reward good performance?

We have observed that a competitive, market-based compensation system can
help organizations attract and retain a quality workforce. 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. DOD needs to conduct annual, high-level compensation reviews to
determine the competitiveness of the pay ranges, and periodic (every 3 to
5 years) much more comprehensive compensation studies while at the same
point in time, monitoring employee recruiting, retention statistics as
well as employee feedback during the interim in order to try to help
assure the competitiveness of the system.

We have reported that direct costs associated with salaries were one of
the major cost drivers of implementing pay for performance systems, based
on the data provided us by selected Office of Personnel Management
demonstration projects. We found that some of the demonstration projects
intended to manage costs by providing a mix of one-time awards and
permanent pay increases. Rewarding an employee's performance with an award
instead of an equivalent increase to base pay can help contain salary
costs in the long run because the agency only has to pay the amount of the
award one time, rather than annually.

Safeguards to help ensure fairness and guard against abuse.

Mr. Walker, in your testimony you expressed concern about whether the
regulations contain adequate safeguards to help ensure fairness and guard
against abuse. This seems particularly relevant with respect to the
process for assessing performance.

Could you elaborate on what kinds of safeguards you believe should be
considered in this context?

As we noted in our statement, although DOD's proposed regulations provide
for some safeguards to ensure fairness and guard against abuse, additional
safeguards should be developed. We have developed an initial list of
possible safeguards to help ensure that pay-for-performance systems in the
government are fair, effective, and credible. The safeguards include,
among other things, the following.

           o  Assure that certain predecisional internal safeguards exist to
           help achieve the consistency, equity, nondiscrimination, and
           nonpoliticization of the performance management process (e.g.
           independent reasonableness reviews by Human Capital Offices and/or
           Offices of Opportunity and Inclusiveness or their equivalent in
           connection with the establishment and implementation of a
           performance appraisal system, as well as reviews of performance
           rating decisions, pay determinations, and promotion actions before
           they are finalized to ensure that they are merit-based; internal
           grievance processes to address employee complaints; and pay panels
           whose membership is predominantly made up of career officials who
           would consider the results of the performance appraisal process
           and other information in connection with final pay decisions).

           o  Assure that there are reasonable transparency and appropriate
           accountability mechanisms in connection with the results of the
           performance management process. This includes reporting
           periodically on internal assessments and employee survey results
           relating to the performance management system and publishing
           overall results of performance management and individual pay
           decisions while protecting individual confidentiality.

           o  Assure that the agency's performance management systems (1)
           link to the agency's strategic plan, related goals, and desired
           outcomes and (2) result in meaningful distinctions in individual
           employee performance. This should include consideration of
           critical competencies and achievement of concrete results.

           o  Involve employees, their representatives, and other
           stakeholders in the design of the system, including having
           employees directly involved in validating any related
           competencies, as appropriate.

           o  Assure that there is an independent and credible employee
           appeals mechanism.

Do you know of federal agencies where such mechanisms have proven
effective to guard against unfairness and abuse in a pay-for-performance
system?

The list of safeguards mentioned earlier are based on our own experience
at GAO as well as our extensive body of work looking at the performance
management practices used by leading public and private sector
organizations in the United States. For example, to help provide
transparency on how employees' performance compares to the rest of an
organization, we previously reported that that Naval Sea Systems Command
Warfare Center's Newport division publishes the results of its annual
performance cycle. Newport aggregates the data so that no individual
employee's rating or payout can be determined to protect confidentiality.
Employees can compare their performance rating category against others in
the same unit, other units, and the entire division.

IBM built in several accountability mechanisms to help achieve consistency
and equity in pay decisions across employee groups and teams. To help
ensure there is no discrimination in pay decisions, IBM conducts a base
pay equity analysis to review the pay of women or minority employees if
their proposed pay is one standard deviation or more away from the mean of
the majority of employees and looks for an explanation for these pay
differences, such as poor performance, a recent promotion into the pay
band, or an extended leave of absence. In addition, IBM built in
second-level reviews of pay decisions before employees receive any pay
increases to ensure consistency in the compensation process. The
first-line managers discuss their proposed pay decisions with managers at
the next level-the up-line managers-to ensure the performance assessments
and justifications are consistent across groups. Up-line managers can also
shift pay allocations across groups if necessary in order to ensure
employees who perform similarly are compensated the same regardless of
their first-line managers. As a final check, the senior managers sign off
on the pay decisions for each employee.

Questions from Senator Daniel Akaka

1. As you know, I was joined by Senators Collins, Lieberman, and Voinovich
in asking GAO to review the costs associated with the design,
implementation, and training related to the National Security Personnel
System (NSPS) so I am very pleased that our request has been elevated to a
GAO initiative. Your evaluation will assist us greatly with our oversight
of NSPS. What methodologies, mileposts, and timeframes have been
established for the review?

As we have noted in our most recent testimony, DOD is challenged to
provide adequate resources to implement its new personnel system,
especially during a time when some of the department's resources are being
directed towards the Global War on Terrorism. By April 2006, we plan to
begin an evaluation of the costs associated with the design and
implementation of NSPS, and provide Congress with relevant information by
September 2006.

2. You have repeatedly testified that safeguards are needed to ensure
fairness and guard against abuse in any pay-for-performance system. From
your meetings with the Department of Defense (DOD) and the Office of
Personnel Management (OPM), do you know why similar safeguards have not
been included in the NSPS final regulations?

In our most recent testimony on the final NSPS regulations, we noted
several issues that DOD will need to define in more detail than is
currently provided. We believe that the details of DOD's system do matter
and that they should have been addressed in the final regulations and then
further defined in implementing issuances. Importantly, DOD has plans to
issue a number of issuances that will contain detailed policies and
procedures for the new system. These issuances will be of critical
importance and their content will include important details that can serve
to either enhance or reduce the likelihood of a successful implementation.
Hopefully, these issuances will be responsive to our recommendations with
regard to the need for additional safeguards. In any event, these
critically important details must be defined in conjunction with
applicable key stakeholders and certain steps should be taken before any
new authorities are implemented.

3. Mr. Walker, you support revising reduction-in-force (RIF) procedures to
emphasize employee performance over tenure. However, union representatives
state that the change in RIF procedures will adversely impact veterans by
allowing DOD to design a RIF that will affect only veterans. Would you
comment on this, and do you have any suggestions as to how this situation
can be avoided?

Our answer to Senator Warner's question 4 above also applies to this
question.

4. DOD has clearly stated that NSPS must be perceived as fair by
employees. However, based on public comment and congressional testimony
from employee representatives, it appears that employees believe NSPS is
neither fair nor perceived as fair. What would you do to make the NSPS
appeals system both fair and perceived as fair by employees?

There is no question that DOD's proposed and final regulations relating to
the adverse actions and appeals process has not been without controversy.
As you know, 10 federal labor unions filed suit alleging that, among other
things, DOD's adverse actions and appeals process is unlawful. In ruling
on the labor unions' suit, a federal judge found that DOD's appeals
process does not provide fair treatment to DOD employees, and permanently
enjoined DOD from moving forward with implementing the final regulations
relating to the adverse actions and appeals process.4

As Comptroller General, I have worked with others to make the Government
Accountability Office a model federal agency by transforming its
organization and operations to address the challenges and opportunities of
the 21st century. In other presidentially appointed posts, including
public trustee for Social Security and Medicare, I have seen the federal
government falter in its attempts at major public policy reforms in those
areas. The process one employs to advance major initiatives is critical.
Based on my experience, three key process related elements maximize the
chances for success: principles, players, and proposals.

With regard to principles, before leaders can achieve major internal or
external changes, they need to make a clear and compelling case that the
status quo is unacceptable and unsustainable. But that's not enough.
Leaders also must provide a set of clear, comprehensive and compelling
principles to frame the debate and help others understand the overall
direction and objectives.

With regard to players, any major reform effort requires the direct and
sustained involvement of an organization's chief executive officer. But
the CEO also must recruit champions from various stakeholder groups. For
internal reforms, this includes managers, employees and employee
organizations. For legislative reforms, it includes businesses, unions,
citizen groups, think tanks, the media and members of both major political
parties. Champions should be capable, credible, committed and effective
communicators. These individuals also should be part of a broad-based "big
tent" approach to both crafting and selling reform proposals.

With regard to proposals, a detailed plan should be developed and
presented or endorsed for action. The proposal should be consistent with
the articulated principles, supported by applicable champions and informed
by the "big tent" process. There is always risk in presenting a specific
plan, especially in politically charged environments. But realistic
leaders recognize that any major reform proposal is likely to be revised
before it is enacted. Revisions could include desirable improvements or
necessary compromises, but as the old saying goes, "Don't let the perfect
be the enemy of the good."

These three steps to reform do not have to be addressed in a particular or
guarantee success, but failure to effectively address one or more would
likely ensure defeat.

4American Federation of Government Employees, AFL-CIO, et. al. v. Rumsfeld
et al, No. 05-2183, 2006 U.S. Dist. LEXIS 7068 (D.D.C. Feb. 27, 2006).

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 J.
Christopher Mihm, Managing Director, Strategic Issues on governmentwide
human capital issues at 512-6806 or [email protected] .

David M. Walker

Comptroller General

of the United States

(350806)

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