Office of Personnel Management: Key Lessons Learned to Date for  
Strengthening Capacity to Lead and Implement Human Capital	 
Reforms (19-JAN-07, GAO-07-90). 				 
                                                                 
As the agency responsible for the federal government's human	 
capital initiatives, the Office of Personnel Management (OPM)	 
must have the capacity to successfully guide human capital	 
transformations necessary to meet the governance challenges of	 
the 21st century. Given this key role, GAO was asked to assess	 
OPM's capacity to lead further reforms. In June 2006, GAO	 
testified on several management challenges that OPM faces. This  
report--the second in a series--supplements that testimony and,  
using the new senior executive performance-based pay system as a 
model for understanding OPM's capacity to lead and implement	 
reform, identifies lessons learned that can inform future	 
reforms. GAO analyzed relevant laws and documents, and obtained  
views from the Chief Human Capital Officers (CHCO) Council and	 
human resource directors, the Office of Management and Budget	 
(OMB) staff, and OPM officials. 				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-90						        
    ACCNO:   A65107						        
  TITLE:     Office of Personnel Management: Key Lessons Learned to   
Date for Strengthening Capacity to Lead and Implement Human	 
Capital Reforms 						 
     DATE:   01/19/2007 
  SUBJECT:   Executive agencies 				 
	     Human capital					 
	     Human capital management				 
	     Human capital planning				 
	     Internal controls					 
	     Lessons learned					 
	     Pay for performance				 
	     Performance appraisal				 
	     Performance management				 
	     Staff utilization					 
	     Strategic planning 				 

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GAO-07-90

   

     * [1]Results in Brief
     * [2]Background
     * [3]Key Lessons Learned from the Senior Executive Performance-ba

          * [4]Ensure Internal OPM Capacity to Lead and Implement Reform
          * [5]Ensure That Executive Branch Agencies' Infrastructures Suppo
          * [6]Collaborate with CHCO Council
          * [7]Develop Clear and Timely Guidance
          * [8]Share Best Practices
          * [9]Solicit and Incorporate Feedback
          * [10]Track Progress to Ensure Accountability

     * [11]Conclusions
     * [12]Recommendations for Executive Action
     * [13]Agency Comments and Our Evaluation
     * [14]GAO Contact
     * [15]Acknowledgments
     * [16]GAO's Mission
     * [17]Obtaining Copies of GAO Reports and Testimony

          * [18]Order by Mail or Phone

     * [19]To Report Fraud, Waste, and Abuse in Federal Programs
     * [20]Congressional Relations
     * [21]Public Affairs

Report to Congressional Requesters

United States Government Accountability Office

GAO

January 2007

OFFICE OF PERSONNEL MANAGEMENT

Key Lessons Learned to Date for Strengthening Capacity to Lead and
Implement Human Capital Reforms

GAO-07-90

Contents

Letter 1

Results in Brief 3
Background 9
Key Lessons Learned from the Senior Executive Performance-based Pay System
and Other Human Capital Initiatives 14
Conclusions 35
Recommendations for Executive Action 35
Agency Comments and Our Evaluation 36
Appendix I Scope and Methodology 38
Appendix II Description of the Senior Executive Performance-based Pay
System Certification Process 40
Appendix III Agency Certification Status for Calendar Years 2004, 2005,
and 2006 as of October 2006 44
Appendix IV Comments from the Office of Personnel Management 46
Appendix V GAO Contact and Staff Acknowledgments 48

Tables

Table 1: Lessons Learned from the Performance-based System and Other Human
Capital Initiatives 4
Table 2: Senior Executive Performance Appraisal System Certification
Criteria 41

Figure

Figure 1: Overview of Senior Executive Performance Appraisal System
Certification Process 43

Abbreviations

CHCO Chief Human Capital Officer
CPDF Civilian Personnel Data File
DHS Department of Homeland Security
DOD Department of Defense
DOL Department of Labor
EEO Equal Employment Opportunity
EEOC Equal Employment Opportunity Commission
FDIC Federal Deposit Insurance Corporation
FHCS Federal Human Capital Survey
GSA General Services Administration
HCAAF Human Capital Assessment and Accountability Framework
HCLMSA Human Capital Leadership and Merit System Accountability
HCO Human Capital Officer
HR Human Resources
HUD Department of Housing and Urban Development
NASA National Aeronautics and Space Administration
NSPS National Security Personnel System
OMB Office of Management and Budget
OPM Office of Personnel Management
PAAT Performance Appraisal Assessment Tool
PMA President's Management Agenda
SBA Small Business Administration
SES Senior Executive Service
SHRP Strategic Human Resources Policy
SL senior-level position
ST scientific or professional position

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protection in the United States. It may be reproduced and distributed in
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separately.

United States Government Accountability Office

Washington, DC 20548

January 19, 2007

The Honorable Joseph I. Lieberman
Chairman
The Honorable Susan M. Collins
Ranking Minority Member
Committee on Homeland Security and Governmental Affairs United
States Senate

The Honorable Daniel K. Akaka
Chairman
The Honorable George V. Voinovich
Ranking Minority Member
Subcommittee on Oversight of Government Management,
the Federal Workforce, and the District of Columbia
Committee on Homeland Security and Governmental Affairs
United States Senate

Strategic human capital management is the centerpiece of federal agencies'
efforts to transform to meet the governance challenges of the 21st
century. Congress has provided agencies with exemptions from the old rules
and with new hiring flexibilities to more strategically manage their
workforces to help meet current and emerging demands, and the Department
of Defense (DOD) and the Department of Homeland Security (DHS) are
implementing legislated human capital reforms affecting performance-based
pay systems, among other things. Strategic human capital management has
become more important as changes in workforce demographics pose additional
challenges. Baby boomers are likely to begin retiring in large numbers in
the near future, while at the same time the labor force is growing at a
much slower rate. Thus, those leaving jobs will outnumber those seeking
jobs, further challenging the federal government to ensure that it
recruits, hires, trains, develops, and motivates the talent it needs to
achieve meaningful results and to be competitive with the private sector.

Senior executives need to lead the way in transforming their agencies to
become more results oriented, collaborative in nature, and customer
focused. Also, we have reported that the shift to market-based and more
performance-oriented pay must be part of a broader strategy of change
management and performance improvement initiatives and cannot be simply
overlaid on existing ineffective performance management systems.^1 In
2003, Congress authorized a new performance-based pay system for members
of the Senior Executive Service (SES). The Office of Personnel Management
(OPM) has a key leadership role in leading and implementing this new
system as well as other human capital initiatives and reforms. Thus, the
lessons learned from implementing the new senior executive performance
appraisal system (the foundation of the SES pay reforms) and other
governmentwide human capital initiatives provide valuable insight into
OPM's capacity to lead and implement human capital reforms.

As the federal government's human capital leader, OPM must have the
capacity to effectively assist agencies and to successfully lead and
implement these important human capital management transformations. To
enhance its capacity to do so, OPM is working to transform its own
organization from less of a rulemaker, enforcer, and independent agent to
more of a consultant, toolmaker, and strategic partner. As reform
initiatives move forward, it is increasingly important for OPM to complete
this transformation and clearly demonstrate its capacity to lead and
implement such reforms.

Given the importance of OPM's key role, you asked us to assess the extent
to which OPM has the capacity to lead and implement governmentwide human
capital reform. In June 2006, we testified before the Subcommittee that
while OPM has made progress towards transforming itself to be a more
effective leader of human capital reform, it could build upon this
progress by addressing a number of management challenges.^2 This report
supplements the information we provided in our June 2006 testimony, and as
agreed with your offices is the second in a series of reports, and
specifically identifies lessons that can be learned from OPM's efforts to
lead and implement the senior executive performance-based pay system and
other human capital initiatives that can be applied to ongoing and future
human capital reform efforts. OPM officials agreed that its role in
certifying senior executive performance appraisal systems is illustrative
of the challenges OPM faces related to future human capital legislative
reforms. As you have requested, we will continue to follow up on these and
other issues related to OPM's capacity to lead and implement human capital
reforms including issues raised in our June 2006 testimony on OPM's (1)
leadership; (2) talent and resources; (3) customer focus, communication,
and collaboration; and (4) performance culture and accountability.

^1GAO, Human Capital: Symposium on Designing and Managing Market-Based and
More Performance-Oriented Pay Systems, [22]GAO-05-832SP (Washington, D.C.:
July 27, 2005).

^2GAO, Office of Personnel Management: OPM is Taking Steps to Strengthen
Its Internal Capacity for Leading Human Capital Reform, [23]GAO-06-861T
(Washington, D.C.: June 27, 2006).

For this report, we reviewed and analyzed key documents related to the
senior executive performance-based pay system, including the legislation
that authorized the pay flexibilities and the OPM and Office of Management
and Budget (OMB) regulations developed to administer these systems. We
also reviewed and analyzed other documents related to OPM's process for
certifying agency performance appraisal systems and conducted interviews
with OPM's five associate directors and other OPM staff, as well as staff
from OMB involved in the appraisal system certification process. To obtain
agency views on their experiences with the certification process, we
interviewed 22 of the 23 members of the Chief Human Capital Officers
(CHCO) Council and their corresponding agency human resource (HR)
directors and obtained written responses from the 1 agency we did not
interview. We also drew from our June 2006 testimony that included data
from the Civilian Personnel Data File (CPDF) and our analysis of the 2004
Federal Human Capital Survey (FHCS),^3 2005 OPM focus groups, and 2006 OPM
action plans to address problems identified. We also reviewed OPM's March
2006 strategic and operational plan, associated workforce planning
documents, and documentation on other OPM human capital initiatives, such
as the Performance Appraisal Assessment Tool (PAAT) and agency beta sites
for performance management below the senior level. Appendix I contains a
detailed discussion of our scope and methodology. We conducted our work
from October 2005 to September 2006, in accordance with generally accepted
government auditing standards.

Results in Brief

The congressionally authorized senior executive performance-based pay
system, implemented in 2004 as well as OPM's implementation of other
governmentwide human capital initiatives, provides an opportunity to learn
from experiences gained and apply those lessons to the implementation of
future human capital reforms. More specifically, OPM has a key leadership
and oversight role in the design and implementation of agencies' senior
executive performance-based pay systems and is likely to play a similar
role in governmentwide human capital reform. For example, to qualify for
the pay flexibilities under the statute, OPM must certify and OMB must
concur that an agency's senior executive appraisal system meets specific
criteria jointly developed by OPM and OMB. For lessons learned that can
inform the design and implementation of additional human capital reforms,
see table 1.

^3OPM developed the governmentwide Federal Human Capital Survey to assist
agencies and OPM in better understanding specific and governmentwide
agency workforce management conditions and practices in the areas of
leadership, performance culture, and talent.

Table 1: Lessons Learned from the Performance-based System and Other Human
Capital Initiatives

Source: GAO analysis.

Ensure internal OPM capacity to lead and implement reform. Executive
branch agency experiences with implementing the senior executive
performance-based pay systems and other human capital efforts point to a
lack of knowledge and experience among OPM staff, and a majority of agency
CHCOs and HR directors expressed concern with OPM's ability to generally
provide timely and accurate guidance to agencies both now and in the
future. OPM's capacity in technical areas such as pay and compensation may
be dependent upon a few employees skilled in these areas. Also, our
analysis of available OPM data suggests that overall employees may not be
receiving sufficient training to enhance their skills and competencies.
The problem of a lack of knowledge and experience may be compounded by the
potential loss of institutional knowledge. OPM's succession planning data
show that as of July 2006, nearly half of its 376 supervisors, managers,
and executives were eligible for either early or regular retirement. Based
on historical trend data, OPM projects an overall loss (including
retirements) of roughly 65 to 75 supervisory, managerial, and executive
positions per year.

OPM has begun to align its workforce skills and competencies to meet
additional requirements stemming from future reforms and other
environmental changes. For example, OPM conducted agencywide skills and
competencies assessments in 2001 and 2003, and has conducted skills
assessments for certain targeted occupations. Validating skills and
competencies is important because the workforce skills and competencies
needed to be a strategic partner, toolmaker, or consultant may be
different from those needed in the past to be a rulemaker or enforcer of
regulations. Importantly, OPM has recently updated several of its key
strategic management documents. For example, in March 2006, OPM issued its
Strategic and Operational Plan, 2006-2010--the starting point and basic
underpinning for transformation. In August 2006, OPM updated its Corporate
Leadership Succession Management Plan to include all of its supervisory,
management, and executive positions with succession planning profiles that
contain a list of specific and general technical competency requirements
for each position. At the end of September 2006, OPM issued its Plan for
the Strategic Management of OPM's Human Capital for fiscal years
2006-2007. A new agencywide skills assessment would enable OPM to better
align its workforce with needed resources to meet current and emerging
demands.

Ensure that executive branch agencies' infrastructures support reform.
OPM's approach to certifying agencies' senior executive performance
appraisal systems could more fully promote the building of the
institutional infrastructure, such as robust performance management
systems with adequate safeguards, within agencies needed to effectively
implement the executive performance and pay reforms. Overall, the
regulations that OPM and OMB developed to administer a performance-based
pay system for executives serve as an important step for agencies in
creating an alignment or "line of sight" between executives' performance
and organizational results. Agencies that are authorized to implement the
new pay flexibilities will receive either a provisional or full
certification. Provisionally certified agencies receive the same pay
flexibilities as those with fully certified systems, even though agencies
with provisional certification do not meet all nine of the certification
criteria. In essence, the provisional category of certification
constitutes a phased approach to implementing performance-based pay
systems by allowing agencies to work toward meeting the full certification
requirements as they are implementing the new authorities. Of the 33
performance appraisal systems that have been certified in 2006, only the
Department of Labor's SES system received full certification. OPM has
opportunities to build on the progress it has made and further strengthen
its efforts. More specifically, additional front-end and ongoing OPM
involvement appears to be needed to assist agencies in achieving and
maintaining full certification. Executive branch agency officials said
OPM's role in the certification process focuses more on enforcing rules
regarding applications for certification, rather than guiding and
assisting agencies in building the necessary infrastructure for a
performance-based pay system. This is especially true as the standards for
full certification are evolving and becoming more difficult to meet.

Collaborate with CHCO Council. Executive branch agency officials said the
certification process was a missed opportunity for OPM to better
collaborate with the CHCO Council. One agency CHCO told us that OPM
traditionally uses council meetings to present information to the CHCOs,
but does not always encourage discussions or seek the council's input. OPM
officials indicated that they provided the CHCO Council with opportunities
to discuss the certification process. However, some CHCOs wanted more
involvement in crafting the fundamental design and applicable issues of
the certification process, rather than commenting on draft regulations
after the fact. For example, CHCOs were given a very short time frame of
24 hours to review and comment on the proposed certification criteria.

Develop clear and timely guidance. The lack of clear and timely guidance
from OPM created confusion as agencies attempted to understand and
implement the broadly defined regulatory criteria and adjust to the
requirements for certification. Officials at a majority of the CHCO
Council agencies told us they did not have enough initial guidance to
properly prepare for meeting the certification criteria, and this problem
has continued beyond the initial release of the regulations. OPM officials
we spoke with agreed that OPM needs to provide clear and consistent
guidance to agencies and said they are working to improve this. These
officials said the certification of agency pay systems has been an
iterative, learning process, and OPM is positioning itself to provide more
guidance to agencies.

Share best practices. Executive branch agency officials told us that OPM
could have better facilitated the sharing of best practices to help them
implement their performance-based pay systems. For example, executive
branch agency officials said best practices for developing senior
executive performance measures are needed to make their performance plans
more results based, as required for certification. Recently, OPM has taken
steps to share information among agencies. In September 2006, OPM provided
agencies' executive resource directors with samples of actual agency
senior executive performance plans, though OPM did not specify why these
samples were selected and if they should serve as best practices for other
agencies.

Solicit and incorporate feedback. OPM does not actively solicit and act on
feedback from agencies on the implementation of the certification process.
Executive branch agency HR directors said there was not a formal
mechanism, such as a survey instrument, for agencies to provide feedback
to OPM on its guidance and assistance to agencies. An OPM executive
confirmed that OPM does not have a formal feedback mechanism; however,
this official said OPM converses with agencies regularly, so OPM did not
feel the need to obtain information in this way. Also, OPM does not
capture senior executive perceptions of the new performance appraisal
system, and further, OPM does not require agencies to gather feedback from
senior executives who are directly affected by the new appraisal systems,
even though agencies are approaching the fourth year of implementation.

Track progress to ensure accountability. OPM does not have an evaluation
strategy to track the progress of the overall results of the senior
executive performance-based systems. OPM is taking steps to monitor how
agencies are making meaningful distinctions in senior executive
performance--one of the nine criteria it has developed for certifying
agencies' senior executive performance appraisal systems. Once agencies
have provisional or full certification, OPM monitors this criterion by
measuring the distributions of agencies' performance ratings and pay. We
have reported that agencies seeking human capital reform should consider
doing evaluations that are broadly modeled on the evaluation requirements
of the OPM demonstration projects. Under the demonstration project
authority, agencies must evaluate and periodically report on results,
implementation of the demonstration project, cost and benefits, impacts on
veterans and other equal employment opportunity groups, adherence to merit
system principles, and the extent to which the lessons from the project
can be applied governmentwide.

In addition to the lessons learned that can be applied to future human
capital reforms, we are making a recommendation to the Director of OPM to
help ensure that OPM has the skills and competencies needed to effectively
assist executive branch agencies with future human capital reform efforts
by reexamining OPM's current agencywide competency assessment to reflect
changes in the human capital environment and demands of the future. Also,
to assist agencies in meeting the requirements for certification of their
senior executive performance appraisal systems, we are making
recommendations to the Director of OPM to (1) develop and publish a
timeline for the issuance of certification guidance with the input of the
CHCO Council; (2) evaluate alternatives that could remedy the year-end
time compression that agencies face when trying to meet OPM application
requirements and avoid a gap in certification; (3) work with the CHCO
Council to develop a formal mechanism for sharing leading practices for
implementing human capital initiatives, such as the senior executive
appraisal system and other performance management reform initiatives; (4)
develop a formal feedback mechanism to obtain agencies' views on OPM's
implementation of the certification process; (5) work with executive
branch agencies to develop a systematic approach for obtaining employee
attitudes towards human capital reforms; and (6) develop a strategy to
allow OPM, other executive agencies, and Congress to monitor the progress
of implementation of the senior executive performance-based pay system.

We provided OPM a draft of this report for its review and comment and
received a written response from the Director of OPM. Director Springer
said OPM has made progress towards achieving its operational and strategic
goals since she became Director of OPM. The Director provided information
that while beyond the scope of the report, nonetheless is helpful in
understanding the context in which OPM is operating. Specifically, she
commented that OPM associates have worked together and with agencies to
achieve the objectives that are tied to OPM's Strategic and Operational
Plan, 2006-2010, and since March 2006, OPM has achieved its plan's
objectives, on time or ahead of schedule. While OPM neither agreed nor
disagreed with our recommendations, the agency provided a number of
technical comments and, where appropriate, we have made changes to the
report language to reflect these comments. Director Springer's letter on
our draft report is found in appendix IV.

Background

OPM's mission and responsibilities are found in Title 5 of the U.S. Code,
which provides for the effective implementation of civil service laws,
rules, and regulations. OPM also evaluates the effectiveness of personnel
policies, agency compliance with laws, rules, regulations and office
directives, and agency personnel management evaluation systems. Overall,
OPM manages the federal government's human capital and is charged with
helping agencies shape their human capital management systems and holding
them accountable for effective human capital management practices. OPM
does this in such a way to help ensure that: (1) the federal government
acquires, develops, manages, and retains employees with the knowledge,
skills, and abilities needed to deliver services that the American public
want and deserve; and (2) agencies consistently uphold governmentwide
values, such as merit system principles, veteran's preference, and
workforce diversity. OPM is also responsible for administering retirement,
health benefits, and other insurance services to government employees,
annuitants, and beneficiaries.

In January 2001, we added strategic human capital management to our list
of federal programs and operations identified as high risk.^4 In a July
2001 report, we evaluated OPM's goals and measures for assessing the state
of human capital at federal departments and agencies and found weaknesses
in OPM's measures of workforce skills and employee accountability and made
recommendations to help address these issues, among other things.^5 OPM
has since taken action on our recommendations. In a January 2003 report,
we examined OPM's progress towards its own transformation, as OPM shifts
its role from less of a rule maker and enforcer to more of a consultant
and strategic partner in leading and supporting agencies' human capital
initiatives. We concluded that OPM should exert greater leadership to
prepare the way for human capital reform.^6

^4GAO, High-Risk Series: An Update, [24]GAO-01-263 (Washington, D.C.:
January 2001).

^5GAO, Office of Personnel Management: Status of Achieving Key Outcomes
and Addressing Major Management Challenges, [25]GAO-01-884 (Washington,
D.C.: July 9, 2001).

^6GAO, Major Management Challenges and Program Risks, Office of Personnel
Management, [26]GAO-03-115 (Washington, D.C.: January 2003).

In June 2006, we testified before the Subcommittee that OPM has made
commendable efforts towards transforming itself to being a more effective
leader of governmentwide human capital reform. We noted however, that it
could build upon that progress by addressing challenges that remain in
four key areas: (1) leadership; (2) talent and resources; (3) customer
focus, communication, and collaboration; and (4) performance culture and
accountability.^7 First, in the area of leadership, we reported that
information from OPM employees based on our analysis of the 2004 FHCS
suggests that information from their top leadership does not cascade
effectively throughout the organization and that many employees do not
feel their senior leaders generate a high level of motivation and
commitment in the workforce. These views on leadership were more strongly
expressed by employees in OPM's Human Capital Leadership and Merit System
Accountability (HCLMSA) division--one of OPM's key divisions and a unit
responsible for partnering with agencies and vital to successful human
capital reform efforts. In May 2006, OPM developed a series of action
plans to address issues raised in the 2004 FHCS, including a number of
planned actions to improve overall and cross-divisional communication and
employee views of senior management.

Second, we reported that in the area of talent and resources, OPM has made
progress in assessing current workforce needs and developing leadership
succession plans; however, if OPM is to lead governmentwide human capital
reform it can do more to identify the skills and competencies of the new
OPM, determine any skill and competency gaps, and develop specific steps
to fill such gaps. Third, we reported that the views of agency CHCOs and
HR directors as well as OPM employees show that OPM can improve its
customer service and communication with agencies and that guidance to
agencies is not always clear and timely. Executive branch agency officials
also pointed to OPM's Human Capital Officer (HCO) structure as a frequent
barrier to efficient customer response and felt there are greater
opportunities for OPM to dialogue and collaborate with CHCOs and HR
directors. Fourth, with respect to performance culture and accountability,
we reported that OPM has made progress in creating a "line of sight" or
alignment and accountability across its leaders' expectations and
organizational goals in its strategic and operational plan; however,
success in achieving governmentwide reform objectives will rest, in part,
on OPM's ability to align performance and consistently support mission
accomplishment for all employees of the organization.

^7 [27]GAO-06-861T .

As Congress and other stakeholders have recognized the importance of
strategic human capital management, several legislative changes have
occurred. In November 2002, Congress passed the Homeland Security Act of
2002,^8 which created DHS and provided the department with significant
flexibility to design, in consultation with OPM, a modern human capital
management system affecting approximately 180,000 personnel. Specifically,
the legislation granted DHS certain exemptions from the laws governing
federal civilian personnel management in Title 5 of the U.S.
Code--providing DHS with certain human capital flexibilities to establish
a contemporary human capital system that will enable it to attract,
retain, and reward a workforce able to meet its critical mission.^9

To address governmentwide human capital management challenges, Title XIII
of the Homeland Security Act, also cited as the Chief Human Capital
Officers Act of 2002, established CHCO positions in 23 agencies to advise
and assist the heads of agencies and other executive branch agency
officials in their strategic human capital management efforts. The act
also created the CHCO Council to advise and coordinate the activities of
members' agencies on such matters as the modernization of human resources
systems, improved quality of human resources information, and legislation
affecting human resources operations and organizations.^10 The act also
included significant provisions related to direct hire authority, the use
of categorical ranking in the hiring of applicants instead of the "rule of
three," expansion of voluntary early retirement and "buy-out" authority, a
requirement to discuss human capital approaches in Government Performance
and Results Act reports and plans, and a provision raising the total
annual compensation limit for senior executives and other senior
professionals in agencies with performance appraisal systems that have
been certified by OPM and OMB as making meaningful distinctions in
relative performance.

^8Pub. L. 107-296, Nov. 25, 2002.

^9Full implementation of the DHS personnel system has stalled due to an
appeals court decision invalidating portions of the personnel regulations
that deal with labor management relations. DHS has begun to transition
nonunion employees to the new pay system and to train employees about the
new system.

^10The 25-member CHCO Council is composed of the Director OPM, who serves
as chairman; the Deputy Director for Management of OMB, who acts as vice
chairman; the CHCOs of the 15 executive departments; and the CHCOs of 8
additional agencies designated by the OPM Director.

In November 2003, the National Defense Authorization Act for Fiscal Year
2004^11 provided DOD--the largest federal employer--with authority, in
conjunction with OPM, to establish a flexible and contemporary human
resources system, including a new (1) pay and performance management
system, (2) appeals process, and (3) labor relations system--which
together comprise the National Security Personnel System (NSPS). Like the
Homeland Security Act, this legislation granted DOD certain exemptions
from Title 5 of the U.S. Code and provided significant flexibility for
designing NSPS, allowing for a new framework of rules, regulations, and
processes to govern how defense civilian employees are hired, compensated,
promoted, and disciplined. The NSPS would cover approximately 700,000
employees.^12

Also, in the National Defense Authorization Act for Fiscal Year 2004,
Congress authorized a new performance-based pay system for members of the
SES.^13 Under the new system, which took effect in January 2004, senior
executives no longer receive annual across-the-board or locality pay
adjustments. Executive branch agencies must now base pay adjustments for
senior executives on individual performance and contributions to agency
performance through an evaluation of their unique skills, qualifications,
or competencies, as well as the individual's current responsibilities. The
new pay system raises the cap on base pay and total compensation. For
2006, the caps are $152,000 for base pay (Level III of the Executive
Schedule) with a senior executive's total compensation not to exceed
$183,500 (Level I of the Executive Schedule). If an agency's senior
executive performance appraisal system is certified by OPM and OMB
concurs, the caps are increased to $165,200 for base pay (Level II of the
Executive Schedule) and $212,100 for total compensation (the total annual
compensation payable to the Vice President).

^11Pub. L. No. 108-136, Nov. 24, 2003.

^12As with the DHS personnel system, full implementation of the NSPS has
stalled due to a federal district court decision invalidating the labor
relations and adverse action portions of the regulations. DOD has already
placed 11,000 nonunion employees under the new system and began
transitioning another 66,000 employees to the system in October 2006.

^13Prior to passage of the act authorizing the pay flexibilities, in
October 2000, OPM amended regulations for senior executive performance
management to help agencies hold senior executives accountable for
organizational results, a mandate that originates in the Civil Service
Reform Act of 1978.

In addition to SES employees, many agencies use senior employees with
scientific, technical, and professional expertise, commonly known as
senior-level (SL) and scientific or professional (ST) positions. SL/ST
positions have a lower maximum rate of basic pay than SES employees, and
unlike the SES, their individual rate of pay does not necessarily have to
be based on individual or agency performance. However, an agency may apply
to OPM and OMB for certification of its SL/ST performance appraisal
system, and if the system is certified as making meaningful distinctions
in relative performance, an agency may raise the total annual compensation
maximum for SL/ST employees to the salary of the Vice President.^14
However, certification does not affect the maximum rate of basic pay of
SL/ST employees.

To qualify for these pay flexibilities, OPM must certify and OMB must
concur that an agency's senior executive performance appraisal system
meets certification criteria jointly developed by OPM and OMB. Two levels
of performance appraisal system certification are available to agencies:
full and provisional. To receive full certification, which lasts for 2
calendar years, the design of agency systems must meet nine certification
criteria and agencies must provide documentation of prior performance
ratings to demonstrate compliance with the criteria. Agencies can receive
provisional certification, which lasts for 1 calendar year, if they have
designed but not yet fully implemented a senior executive performance
appraisal system, or do not have a history of performance ratings that
meets the certification criteria. In September 2006, we testified before
the Subcommittee that the certification criteria are generally consistent
with our body of work identifying key practices for effective performance
management systems.^15 In addition, we testified that these senior
executive and senior-level employee performance-based pay systems serve as
an important step for agencies in creating alignment or "line of sight"
between executives' performance and organizational results. A detailed
description of the certification criteria and process is provided in
appendix II.

^14This authority was granted under the Homeland Security Act of 2002,
Pub. L. 107-296, Nov. 25, 2002.

^15GAO, Human Capital: Aligning Senior Executives' Performance with
Organizational Results Is an Important Step Toward Governmentwide
Transformation, [28]GAO-06-1125T (Washington, D.C.: Sept. 26, 2006).

Key Lessons Learned from the Senior Executive Performance-based Pay System and
Other Human Capital Initiatives

The congressionally authorized senior executive performance-based pay
system, implemented in 2004, as well as OPM's implementation of other
governmentwide human capital initiatives, provides an opportunity to learn
from experiences gained and apply those lessons to the implementation of
future human capital reforms. As OPM is likely to play a similar
leadership and oversight role in future reforms, the following lessons
learned may also assist OPM as it moves forward in the design and
implementation of other human capital reforms and initiatives.

Ensure Internal OPM Capacity to Lead and Implement Reform

To successfully transform or implement a large-scale change initiative
such as governmentwide human capital reform, an organization must
fundamentally reexamine its processes, organizational structures, and
management approaches--including its workforce capacity. Strategic
workforce planning addresses two critical needs: (1) aligning an
organization's human capital program with its current and emerging mission
and programmatic goals, and (2) developing long-term strategies for
acquiring, developing, and retaining staff to achieve programmatic goals.
As mentioned previously, in 2003, we reported that OPM was undergoing its
own transformation--from less of a rulemaker to more of a consultant in
leading and supporting executive agencies' human capital management
systems.^16 As the organization transforms and OPM works to balance rules
and tools and change its organizational culture, it is critical that OPM
examine its internal capacity to ensure its workforce has the competencies
to meet the multiple demands of the future and successfully implement
human capital reforms. In particular, we have reported that a
one-size-fits-all approach to human capital management is not appropriate
for the challenges and demands government faces and that there should be a
governmentwide framework to guide human capital reform.^17 Thus, it is
particularly important that OPM's workforce have the knowledge, skills,
and abilities to understand how to balance the need for consistency across
the federal government with the desire for flexibility, so that they can
assist individual agencies in tailoring their human capital systems to
best meet their needs. Striking this balance will not be easy to achieve,
but is necessary to maintain a governmentwide system that is responsive
enough to adapt to agencies' diverse missions, cultures, and workforces.

^16 [29]GAO-03-115 .

^17GAO and the National Commission on the Public Service Implementation
Initiative, Human Capital: Principles, Criteria, and Processes for
Governmentwide Federal Human Capital Reform, [30]GAO-05-69SP (Washington,
D.C.: Dec. 1, 2004).

Executive branch agency experiences with implementing the senior executive
performance-based pay systems and other human capital efforts point to a
lack of knowledge and experience among OPM staff. Several executive branch
agency officials commented that OPM conveyed a "we'll know it when we see
it" method of communicating expectations, and was thus unable to
effectively communicate to agencies their expectations regarding the
senior executive performance appraisal system certification process. In
addition, executive branch agency officials told us they believe the DOD
and DHS human capital reform efforts severely taxed OPM technical
resources, specifically pay and compensation employees. One CHCO surmised
that OPM's capacity is dependent upon a few key employees skilled in these
areas, particularly innovative pay and compensation approaches. An OPM
senior executive confirmed this, telling us that turnover and retirement
were problematic for pay and compensation experts at OPM. Also, a majority
of agency CHCOs, HR directors, and their staffs expressed concern about
whether OPM generally has the technical expertise needed to provide timely
and accurate human capital guidance and advice both now and in the future.
We previously reported that problems arose for many agencies when
technical questions had to be communicated via OPM HCOs to the policy
experts at OPM.^18 This issue may have been magnified for some agencies by
the frequent turnover or reassignments among HCOs. The HCO position was
established in 2003 at OPM as part of its transformation efforts to help
improve customer service to agencies.^19 An executive branch agency
official told us that her agency was assigned four different HCOs in the
last 18 months. According to OPM's most recent strategic human capital
plan, OPM recognizes that HCO staff will need to develop greater
familiarity with areas beyond each individual's technical expertise and
plans for its staff to gain "cross-functional knowledge" through means
such as staff participation on cross-functional work groups that address
various initiatives, training opportunities, and other developmental
assignments that lend themselves to professional growth and development.

^18 [31]GAO-06-861T .

^19Within the HCMLSA division, OPM assigns one HCO as the main point of
contact to each agency of the President's Management Council and one to
each cluster of small agencies.

Further, our analysis of OPM's agency results from the 2004 FHCS and 2005
follow-up focus group data suggest that OPM employees may not be receiving
sufficient training to enhance their skills and competencies. OPM
employees were not as close to the employees in the rest of government in
agreeing with the statement "I receive the training I need to perform my
job." Fifty-three percent of OPM employees agreed with this statement as
compared with 60 percent of employees from the rest of government. Focus
group participants selected this item as one of the most important issues
for OPM to address--expressing the view that OPM's culture does not
support training, employees do not have time to attend training classes,
and managers are not given sufficient and timely training budgets. An OPM
executive supported these views, stating that it can be a struggle to
convince managers that people should attend training. A former senior OPM
official told us that he did not have an overall budget, including
training, for his department while at OPM.

OPM has begun to align its workforce skills and competencies to meet
additional requirements stemming from future reforms and other
environmental changes. For example, OPM conducted agencywide skills and
competencies assessments in 2001 and 2003, and has conducted skills
assessments for certain targeted occupations--information technology,
human resource management, and selected mission-critical positions.
Validating skills and competencies is important because the workforce
skills and competencies needed to be a strategic partner, toolmaker, or
consultant may be different from those needed in the past to be a
rulemaker or enforcer of regulations. Importantly, OPM has also updated
several of its key strategic management documents. First, in March 2006,
OPM issued its Strategic and Operational Plan, 2006-2010--the starting
point and basic underpinning for transformation. The plan's strength is in
its definition of clear, tangible goals and deliverables. However, the
plan does not include a description of the relationship between the
long-term goals and annual goals.

Second, in August 2006, OPM updated its Corporate Leadership Succession
Management Plan to include all of its supervisory, management, and
executive positions with succession planning profiles that contain a list
of specific and general technical competency requirements for each
position. This is important because the problem of a lack of knowledge and
experience at OPM may be compounded by the potential loss of institutional
knowledge. In June 2006, we testified that without careful planning,
employee attrition, including senior executives, could pose the threat of
an eventual loss in institutional knowledge, expertise, and leadership
continuity at OPM.^20 OPM's succession planning data show that as of July
2006, nearly half of its 376 supervisors, managers, and executives were
eligible for either early or regular retirement. Based on historical trend
data, OPM projects an overall loss (including retirements) of roughly 65
to 75 supervisory, managerial, and executive positions per year. Even more
recently, at the end of September 2006, OPM issued its Plan for the
Strategic Management of OPM's Human Capital for fiscal years 2006-2007.
According to OPM's strategic human capital plan, voluntary attrition among
employees overall at OPM has averaged approximately 11 percent over a
3-year period and voluntary retirements comprised approximately 25 percent
of separations from 2003 to 2006.

OPM has developed strategies to help support its succession planning
objectives, such as providing resources to improve and develop the
competence of internal candidate pools to develop deep "bench strength."
In addition, OPM plans to target recruitment efforts around the critical
and core competencies it has identified for each position and to use
recruitment incentives and flexibilities to attract the most desirable
candidates. These succession planning efforts are important because
leading organizations engage in broad, integrated succession planning
efforts that focus on strengthening both current and future organizational
capacity.

OPM's ability to lead and oversee human capital management policy changes
that result from potential human capital reform could be affected by its
internal capacity and ability to maintain the right skills and
competencies of its workforce, as well as an effective leadership team.
The steps taken by OPM demonstrate progress in achieving its
transformation and it must continue on this path by closely monitoring its
actions to align its workforce to meet current and emerging demands. A new
agencywide skills assessment would enable OPM to better align its
workforce with needed resources to meet such demands. Building and
maintaining expertise in areas that will be critical to future reforms,
such as classification and pay and compensation policy, and ensuring that
OPM employees receive opportunities for training and development that will
help them in assisting agencies with the implementation of reforms, are
critical for future reform success. These workforce and training goals and
objectives also should be included in the means and strategies developed
in OPM's strategic planning process. Moving forward, OPM can continue to
monitor implementation of long-term strategies to better prepare its
workforce for change and continue to build its workforce capacity to meet
the demands of the future.

^20 [32]GAO-06-861T .

Ensure That Executive Branch Agencies' Infrastructures Support Reform

We have reported that the federal government should follow a phased
approach towards human capital reforms that meets a "show me" test.^21
That is, each agency should be authorized to implement a reform only after
it has shown it has met certain conditions, including having the
institutional infrastructure in place necessary for success. This
infrastructure includes, at a minimum, a modern, effective, credible, and
validated performance management system that provides a clear linkage
between institutional, unit, and individual performance-oriented outcomes,
as well as providing for adequate internal and external safeguards to
ensure fairness, and prevent abuse, and is nondiscriminatory. The
absolutely critical role that a solid infrastructure plays has been amply
demonstrated by our own and other organizations' experiences in shifting
to market-based and more performance-oriented pay. These experiences have
shown that market-based and performance-oriented pay reforms cannot be
simply overlaid on existing ineffective performance management systems,
but must be part of a broader strategy of change management and
performance improvement initiatives. As the leader of the federal
government's human capital strategies, OPM plays a key role in fostering
and guiding improvements in all areas of strategic human capital
management across the executive branch. As part of its key leadership
role, OPM can assist--and as appropriate, require--the building of the
infrastructures within agencies needed to successfully implement and
sustain human capital reforms and related initiatives. OPM can do this in
part by encouraging continuous improvement and providing appropriate
assistance to support agencies' efforts.

As we testified in September 2006, overall, the regulations that OPM and
OMB developed to administer a performance-based pay system for executives
serve as an important step for agencies in creating an alignment or "line
of sight" between executives' performance and organizational results.^22
However, OPM's approach to certifying agencies' senior executive
performance appraisal systems could more fully promote the building of the
institutional infrastructures needed to effectively implement the senior
executive performance and pay reforms.

^21GAO, Human Capital: Preliminary Observations on the Administration's
Draft Proposed "Working for America Act", [33]GAO-06-142T (Washington,
D.C.: Oct. 5, 2005).

Under OPM and OMB regulations, agencies that are authorized to implement
the new pay flexibilities will receive either a provisional or full
certification. Provisionally certified agencies receive the same pay
flexibilities as those with fully certified systems, even though agencies
with provisional certification do not meet all nine of the certification
criteria. In essence, the provisional category of certification
constitutes a phased approach to implementing performance-based pay
systems by allowing agencies to work toward meeting the OPM and OMB full
certification requirements as they are implementing the new authorities.
Of the 33 performance appraisal systems that have been certified in 2006,
only the Department of Labor's system for its senior executives received
full certification.^23 The remaining 32 systems received provisional
certification, the majority of which were provisionally certified for the
third straight year. (See app. III for the list of agencies that have
received certification of their performance appraisal systems since 2004.)

An agency that is provisionally certified must reapply annually rather
than the every 2 years that is required of agencies with full
certification. This annual reapplication process for agencies with
provisional certification is important in order to help ensure continued
progress in fully meeting congressional intent in authorizing the new
performance-based pay system. Moreover, continuing scrutiny from OPM and
OMB is important because there is no required time frame under which a
provisionally certified agency must demonstrate it meets all the OPM and
OMB criteria and thereby receive full certification. In that regard, OPM's
January 2006 guidance required agencies with provisional certification to
submit information to OPM and OMB showing improvements the agency has made
in response to comments from those agencies. This requirement was
underscored in OPM's October 31, 2006, guidance for calendar year 2007,
that asked agencies to highlight in their certification request any
description or evidence of improvements made as a result of comments from
OPM or OMB in response to the agency's 2006 certification submission.

^22 [34]GAO-06-1125T .

^23The Department of Labor's SL/ST system has not reached full or
provisional certification.

As noted, OMB and OPM's efforts represent an important step in fostering
"lines of sight" within the agencies. Nonetheless, OPM has opportunities
to further strengthen its efforts. More specifically, additional front-end
and ongoing OPM involvement appears to be needed to assist agencies in
achieving and maintaining full certification. Executive branch agency
officials said OPM's role in the certification process focuses more on
enforcing rules regarding applications for certification, rather than
guiding an agency to build the necessary infrastructure for a
performance-based pay system. In addition, these executive branch agency
officials said OPM has helped them improve their pay systems, but they
also said OPM should provide more active assistance during the design and
implementation of the system rather than waiting to evaluate the end
results. Further, an agency CHCO said OPM is not prepared to interact with
agencies to progressively develop and sustain their senior executive
performance-based pay systems over time once they get through the
certification process.

Since the certification process started in 2004, OPM has raised the bar
for certification by placing a greater emphasis on measurable business
outcomes. Raising the bar in the spirit of continuous improvement is
appropriate, but agencies can not achieve the higher standards unless they
are continually building the foundations essential to support augmented
requirements and new improvements. The only two agencies that were fully
certified in 2004, the General Services Administration (GSA) and the
Pension Benefit Guarantee Corporation, were unable to retain full
certification when they reapplied in 2006. An official from one of these
agencies said they applied for full certification in 2006, but received
provisional certification because OPM had raised the bar for meeting full
certification. The agency official stated that upon receiving full
certification in 2004, OPM stopped communicating with the agency about new
developments in the certification process. In addition, this official said
they were "left in the dark" about how OPM's certification standards were
potentially changing, and how the process for certification was evolving.
It was not until 4 months after they submitted their application to
recertify their system that OPM raised concerns regarding "weak" executive
performance measures, though this agency believed that it had achieved the
requirement according to OPM's guidance. The agency opted to accept
provisional certification rather than redo its senior executive
performance plans and wait for full certification.

In general, OPM has recognized that agencies need more assistance and
guidance developing an infrastructure to support performance management
systems for executive branch employees below the senior executive level.
OPM developed the Performance Appraisal Assessment Tool (PAAT) and has
promoted performance management beta sites to address this need.^24 The
PAAT provides agencies with an assessment tool that focuses on the design
and implementation of performance management systems, the training and
development of supervisors, and the agency's accountability for the
system. The PAAT helps agencies identify weaknesses in their performance
management systems and provides agencies an opportunity to develop a
comprehensive strategy for revising its performance management practices
to better support a results-focused performance culture. The beta sites
give agencies an opportunity to test their nonexecutive performance
management systems on a small scale before expanding them agencywide.

Agencies and OPM use the PAAT to evaluate the progress of the beta sites.
This approach of evaluating and testing allows agencies to build internal
capacity, gain experience, and demonstrate that they are prepared to link
pay to performance for all employees. However, as one executive branch
agency official noted, the PAAT is used more by OPM to ensure
accountability than to build agency infrastructure. Similar to concerns
expressed about the senior executive system certification process, an
agency HR director said OPM does not provide "up-front" implementation
plans to agencies that outline the required agency investment and
infrastructure needed to successfully meet new human capital requirements.

Going forward, OPM can help agencies build this infrastructure by
designing its human capital reform efforts to promote and support
continuous agency improvement. OPM will need to expand the focus of its
efforts to help identify the obstacles that are impeding agencies from
achieving desirable human capital outcomes, and then take appropriate
measures to address them and set mutually agreed-upon goals for
improvement. These actions will help ensure that agencies continue to make
substantive progress toward modernized, credible performance management
systems, and that provisional certifications do not become the norm. OPM
can also take steps to define what it will take in terms of fact-based and
data-driven analyses for agencies to demonstrate that they are ready to
receive this certification, and then help agencies develop the
infrastructure necessary to produce these results.

^24In June 2006, OPM established its beta site for its HCLMSA division to
align employee performance expectations with agency strategic goals. In
fiscal year 2007, OPM told us it plans to expand its beta site to other
divisions, which will then cover approximately 70 percent of the agency.

Collaborate with CHCO Council

Our prior work has found that high-performing organizations strategically
use partnerships and that federal agencies, such as OPM, must effectively
manage and influence relationships with organizations outside of their
direct control. High-performing organizations strengthen accountability
for achieving crosscutting goals by placing greater emphasis on
collaboration, interaction, and teamwork across organizational boundaries,
to achieve results that often transcend specific boundaries. Communicating
with stakeholders is especially crucial in the public sector, where policy
making and program management demand transparency and a full range of
stakeholders and interested parties are concerned not only with what
results are to be achieved, but also which processes are used to achieve
those results.^25 Our prior work has identified a number of opportunities
where OPM could improve its collaboration with stakeholders. In 2003, we
reported that the lack of coordination between OPM and GSA, the lead
agencies for the governmentwide telework initiative, created confusion for
federal agencies in implementing their individual telework programs.^26
More recently, our review of oversight of Equal Employment Opportunity
(EEO) requirements and guidance found little evidence of OPM coordination
with the Equal Employment Opportunity Commission (EEOC). Insufficient
understanding of OPM and EEOC's mutual roles, authority, and
responsibilities resulted in a lost opportunity to realize consistency,
efficiency, and public value in federal EEO and workplace diversity human
capital management practice.^27 We have also reported that using
interagency councils has emerged as an important leadership strategy in
both developing policies and gaining consensus and consistent
follow-through within the executive branch.^28 With respect to human
capital reforms, we have reported that the CHCO Council should be a key
vehicle for this needed collaboration and is vital to addressing
crosscutting federal government strategic human capital challenges.^29

^25GAO, Highlights of a GAO Forum: Mergers and Transformation: Lessons
Learned for a Department of Homeland Security and Other Federal Agencies,
[35]GAO-03-293SP (Washington, D.C.: Nov. 14, 2002).

^26GAO, Human Capital: Further Guidance, Assistance, and Coordination Can
Improve Federal Telework Efforts, [36]GAO-03-679 (Washington, D.C.: July
18, 2003).

^27GAO, Equal Employment Opportunity: Improved Coordination Needed between
EEOC and OPM in Leading Federal Workplace EEO, [37]GAO-06-214 (Washington,
D.C.: June 16, 2006).

^28 [38]GAO-06-861T .

Executive branch agency officials said the senior executive performance
appraisal certification process was a missed opportunity for OPM to better
collaborate with the CHCO Council. One agency CHCO said OPM traditionally
uses council meetings to present information to the CHCOs, but does not
encourage discussions or seek the council's input. Another agency CHCO
said the council has rarely been used to debate new human capital
policies. This one-way communication does not provide a forum for agency
CHCOs to contribute ideas or discuss their experiences. Some CHCOs and HR
directors pointed to OPM's successful collaborative efforts through the
CHCO Council, such as its assistance to agencies in the aftermath of
Hurricane Katrina; however, they also told us that OPM misses
opportunities to partner more effectively with agencies. An agency CHCO
said that more robust policy discussion on the council would promote
community building and collaboration among agencies and OPM.

According to OPM officials, OPM provided the CHCO Council with
opportunities to discuss the certification process. However, some CHCOs
wanted more involvement in crafting the fundamental design and applicable
issues of the certification process, rather than commenting on draft
regulations after the fact. While the new interim final regulations were
being developed and issued in 2004, OPM provided two presentations to the
full CHCO Council on the new requirements for senior executive performance
appraisal systems along with periodic updates. The CHCO Council minutes
show that one presentation focused on the design of the new performance
appraisal system and the second on the process for obtaining
certification. Agency CHCOs were able to ask questions about the proposal
and make suggestions. For example, one CHCO suggested that OPM reconsider
the timing of the recertification process since it coincided with
agencies' annual performance appraisal cycle, and this has proven to be a
key issue for the certification process. Further, CHCOs were given a very
short time frame of 24 hours to review and comment on the proposed
certification criteria. Executive branch agency officials overwhelmingly
reinforced a need for OPM to do more to collaborate and facilitate
information sharing with the council and HR directors. More collaboration
with the CHCO Council during the design phase of human capital initiatives
would enable OPM to incorporate agency suggestions and build a
governmentwide consensus for reform.

^29GAO, Human Capital: Observations on Agencies' Implementation of the
Chief Human Capital Officers Act, [39]GAO-04-800T (Washington, D.C.: May
18, 2004).

OPM staff involved with the certification process told us that in 2004,
OPM sought input on the certification criteria from OMB and members of the
CHCO Council. There were also opportunities for agency comments when the
draft regulations were released and through the CHCO Council. In addition,
the CHCO Council Subcommittee of Performance Management reviewed the
process as well. However, most comments focused on pay flexibilities and
not the certification process.

OPM has taken some steps to improve the effectiveness of the council by
expanding the membership to include deputy CHCO positions. Some deputy
CHCOs are also the agencies' HR directors, but others perform different
deputy roles. Including deputy CHCOs will bring additional HR expertise
and provide more leadership continuity to the council. An agency CHCO said
OPM is taking other steps to improve collaboration with agencies, such as
promoting more CHCO Academy^30 meetings on the certification process and
reinstituting executive resource forums, which help keep agency executive
resources staff current on OPM's certification policies. A recent
executive resource forum gave agency executive resource staff an
opportunity to discuss common concerns about the certification process.

Moving forward, collaboration will be critical as human capital reforms
begin to take hold across government. If OPM is to lead reform
successfully, it will need to strategically use the partnerships it has
available to it, such as the CHCO Council and other key stakeholders. OPM
can continue to build upon its expansion of the CHCO Council and promotion
of CHCO Academies and executive resource forums. These are important steps
toward building a collegial environment for debating and collaborating on
future human capital reforms.

^30The CHCO Academy was established as a forum for council members only,
to discuss human resources issues, learn from one another in an informal
setting, and share best practices in the strategic management of human
capital. Academy sessions are scheduled throughout the year on the third
Thursday of the month at OPM.

Develop Clear and Timely Guidance

Our work on high-performing organizations and successful transformations
has shown that communication with customers should be a top priority and
is central to forming the partnerships needed to develop and implement
transformation strategies. This communication is most effective when done
early, clearly, and often. Providing agencies with clear and timely
guidance is one way of effectively communicating with OPM's customers. In
the past, we have reported concerns with OPM's communications pertaining
to their leadership in implementing governmentwide human capital
initiatives and have recommended ways in which OPM could improve its
guidance to federal agencies. For example, in 2003 we reported that an
initial lack of clarity in telework guidance for federal agencies from OPM
led to misleading data being reported on agencies' telework programs. As a
result, we recognized the need for OPM to provide agencies with
consistent, inclusive, and unambiguous support and guidance.^31

The initial lack of clear and timely guidance has hindered agency
implementation of senior executive performance appraisal systems. When the
certification process began in 2004, OPM provided agencies with limited
guidance for implementing the new regulations. Officials at a majority of
the CHCO Council agencies told us they did not have enough guidance to
properly prepare for meeting the certification criteria. With the release
of the regulations in 2004, OPM's initial guidance consisted of a list of
documents required for provisional and full certification and a sample
cover letter to accompany each application. The lack of more specific
guidance created confusion as agencies attempted to understand the broadly
defined regulatory criteria and adjust to the requirements for
certification. Agencies did not fully understand what the regulations
required in order to receive certification, thus resulting in an
inefficient process and increasing the workload of agency human resource
staffs unnecessarily.

According to executive branch agency officials, when contacting OPM for
clarification or assistance with requirements, they received conflicting
answers and advice. Executive branch agency HR directors said that they
sometimes received mixed messages on the certification process from OPM,
and it appeared that answers would change depending on the individual an
agency was working with at OPM. One agency CHCO said that rather than
providing agencies with guidance, OPM tends to wait to receive the agency
submission and then determine if it meets requirements. While OPM directs
agencies to its Web site and online resources, an agency CHCO said they
found this information useful, but this did not fulfill all of their
information needs. OPM officials we spoke with about this agreed that they
need to provide clear and consistent guidance to agencies and said they
are working to improve this. They said the certification of agency
performance appraisal systems has been an iterative, learning process, and
OPM is positioning itself to provide more guidance to agencies. For
example, OPM has continued to update its annual certification guidance to
provide agencies with more assistance when developing their senior
executive appraisal systems for certification. The guidance for calendar
year 2006 includes explicit examples from executive performance plans that
comply with the certification criteria.

^31 [40]GAO-03-679.

The continued late issuance of certification guidance in the years since
the 2004 regulations were released has plagued the process by delaying the
certification of agency systems. Since certification of appraisal systems
runs on the calendar year, an agency's provisional certification expires
on December 31st unless they submit an application and receive
certification for the next calendar year. To avoid a gap in certification
between calendar years, applications for appraisal system certification
need to be approved before January 1st. However, OPM did not issue
guidance for calendar year 2006 until January 5, 2006, causing agencies to
lose time in developing their 2006 applications for review and
certification. This delay was compounded when OPM clarified its guidance
in a January 30, 2006, memorandum telling agencies that senior executive
performance appraisal systems would not be certified for calendar year
2006 if the performance plans did not hold executives accountable for
achieving measurable business outcomes. Some agencies had to revise their
submissions, where necessary, to meet OPM's additional requirements,
causing further delays.

Untimely guidance has been a recurring problem with OPM's implementation
of the certification process, beginning when OPM initially developed the
regulations for certifying appraisal systems. In late November 2003,
Congress passed legislation to create the new senior executive
performance-based pay system to take effect in January 2004; however, it
took 8 months for OPM to publish the certification criteria included in
the interim regulations when jointly released with OMB in July 2004. As a
result, agencies that were certified in 2004 were unable to operate under
the higher executive pay caps until late in the calendar year. In December
2004, OPM issued guidance for calendar year 2005. The guidance was issued
before the start of the calendar year, but only by a few weeks. On
November 1, 2006, OPM posted a memorandum to heads of departments and
agencies from the Director of OPM, notifying them of guidance for agencies
seeking certification for calendar year 2007.

These delays and late revisions exacerbate the time crunch agencies face
when applying for certification. According to executive branch agency
officials, after agencies' performance cycles end on September 30, they
essentially have 90 days until the end of the calendar year when their
current certification expires if they are provisionally certified or in
their final year of full certification. Within this time frame, agencies
must conduct senior executive performance assessments and reviews, develop
performance plans for the next performance year, and compile agency and
senior executive performance data for the certification application. The
late release of certification guidance adds a level of uncertainty to the
process that can delay an agency's submission of its application until
after the start of the calendar year. Some agencies delay preparing their
certification applications because they do not know when OPM will release
its annual guidance or if there will be any changes in requirements from
the previous year. This creates a gap in certification after an agency's
current certification expires. Until the agency's senior executive
performance appraisal system is recertified, it must operate under the
lower "uncertified" executive pay cap of $152,000 in 2006 ($13,200 less
than for certified systems), while the cap on total compensation is
$183,500 ($28,600 less than for certified systems).^32

OPM has acknowledged that the pay limitations in this certification gap
can negatively impact an agency's ability to recruit, reassign, and retain
qualified senior executives. Executive branch agency officials expressed
similar concerns about how the certification gap limits their ability to
attract and hire new executives. They also said the certification gap
creates an uneven playing field between agencies with certified systems
and agencies that are still awaiting recertification. In July 2006, OPM
issued regulations to alleviate one of the concerns with the certification
gap. The regulations now allow agencies to increase the pay rates of
senior executives once the agency is certified, even if it happens after
the start of the calendar year. These regulations resolve a symptom of the
certification gap, but do not address the underlying causes of the time
crunch agencies face when applying for certification. Also, according to
OPM officials, the administration has submitted a legislative proposal to
Congress to eliminate the calendar year basis for certification. However,
such legislation has not been introduced.

^32A senior executive whose rate of basic pay is higher than the rate for
uncertified systems may not suffer a reduction in pay as a result of
transferring to an agency with an uncertified system or as the result of a
decision to suspend a system's certification. Senior executives will
continue to receive their current SES rate, but are not eligible for a pay
adjustment until they are assigned to a position under a certified system.

Moving forward, OPM could alleviate confusion, delays, and inefficiencies
by providing agencies with clear and timely guidance for implementing
human capital reforms. OPM needs to clearly communicate its expectations
and provide agencies with adequate time to adjust to any changes in
requirements. When designing new human capital initiatives, OPM could work
with agencies to identify what guidance agencies will need and develop a
timeline for when OPM will release such guidance. A different time frame
for certifying performance appraisal systems could also help alleviate the
time crunch agencies face when applying for certification.

Share Best Practices

We have reported that leading practices and benchmarking are important to
supporting agency transformation efforts, and often include case
illustrations of leading practices in our reports. In May 2003, we
recommended that OPM work to more thoroughly research, compile, and
analyze information on the effective and innovative use of human capital
flexibilities and more fully serve as a clearinghouse in sharing and
distributing information.^33 OPM began working with a contractor in the
summer of 2005 to review hiring flexibilities and authorities to better
determine which ones are used and not used, who is using them, and when
and how they are being used; however, it is still unclear if OPM has
created a "clearinghouse" of information to help agencies meet their human
capital needs. In 2004, we stated that agencies need to provide OPM with
timely and comprehensive information about their experiences in using
various approaches and flexibilities to improve their hiring processes,
and that OPM could serve as a facilitator in the collection and exchange
of information about agencies' effective practices and successful
approaches.^34

^33GAO, Human Capital: OPM Can Better Assist Agencies in Using Personnel
Flexibilities, [41]GAO-03-428 (Washington, D.C.: May 9, 2003).

^34GAO, Human Capital: Additional Collaboration Between OPM and Agencies
Is Key to Improved Federal Hiring, [42]GAO-04-797 (Washington, D.C.: June
7, 2004).

Executive branch agency officials told us that OPM could have better
facilitated the sharing of best practices for developing and implementing
senior executive appraisal systems. According to OPM, in the last 3 years,
it has reviewed and certified about 100 applications for appraisal system
certification. OPM could use this archive of information to identify some
best practices for developing certified systems, but OPM has not fully
shared this information with agencies. Director Springer said OPM has met
with officials from the only agency currently with full certification, the
Department of Labor (DOL), to study what they have done right. However,
Director Springer did not know if other agencies had taken the initiative
to contact DOL to learn from their success. A senior OPM official said OPM
did not provide agencies with examples of "best practices" for
certification applications because OPM did not want agencies to think
there was only one "right way" to get certified. We have reported that a
"one size fits all" approach to human capital management is not
appropriate, but we also recognized the value of documenting a range of
best practices which agencies can tailor to their specific needs. One
agency HR director said agencies were anxious to learn about what was
going on at other agencies and did not understand why OPM was reluctant to
share information. Without sufficient guidance from OPM, agencies relied
on each other where possible to develop an understanding of the
certification requirements. One CHCO also took the initiative to use CHCO
Academy meetings to engender information sharing among agencies about the
application process. However, agencies were unable to resolve
uncertainties and disagreements about the regulatory requirements without
clearer guidance from OPM. Executive branch agency officials said best
practices for certification could help them improve the design of their
performance appraisal systems. For example, executive branch agency
officials said best practices for developing senior executive performance
measures would help them make their performance plans more results based,
as required for certification. Recently, OPM has taken steps to share
information among agencies. In September 2006, OPM provided agencies'
executive resource directors with samples of agency senior executive
performance plans, though OPM did not specify why these samples were
selected and if they should serve as best practices for other agencies.

Moving forward, OPM should facilitate the sharing of best practices for
human capital reforms among federal agencies. Director Springer has said
she wants the CHCO Council to develop a best practices initiative to
collect and share information on the certification process. The CHCO
Council could be used to facilitate best practices for other human capital
initiatives as well. Providing a forum for agencies to learn from each
others' experiences will allow agencies to share effective strategies and
avoid common pitfalls.

Solicit and Incorporate Feedback

We have reported that communication during a transformation is not about
just "pushing the message out."^35 Given the uncertainties that
performance-based pay systems may generate for agencies and employees
accustomed to receiving more standardized pay increases, two-way
communication is especially important in an environment of human capital
reform. Creating opportunities for employees and customers to communicate
concerns and experiences surrounding a transformation allows them to feel
that their experiences are important and acknowledged. Once this employee
and customer feedback is received, it is important to use this solicited
feedback to make any appropriate changes to the implementation of the
transformation. For example, OPM uses its FHCS as an important method of
gathering its own employee feedback and has used this information to take
actions to improve its organization. In addition, OPM recognizes that it
is important to notify and involve the employees affected by personnel
demonstration projects, which are similar to the senior executive
performance-based pay system, though OPM does not require those
implementing such demonstration projects to obtain feedback. However,
according to its Demonstration Projects Evaluation Handbook, OPM suggests
that a survey is one method that could be used to obtain employees' views
on the impact of the demonstration project to help develop lessons learned
that could be shared with the affected agency, as well as governmentwide.
We have also reported that high-performing organizations understand they
need to continuously review and revise their performance management
systems through monitoring their systems, informally and formally,
including listening to employees' and stakeholders' views.^36

OPM does not actively solicit and act on feedback from agencies on the
implementation of the certification process. Executive branch agency HR
directors said there was not a formal mechanism, such as a survey
instrument, for agencies to provide feedback to OPM on its guidance and
assistance to agencies. An OPM executive within the HCLMSA division
confirmed that OPM does not have a formal feedback mechanism; however,
this executive said OPM converses with agencies regularly so they did not
feel the need to obtain information in this way. Informal feedback from
agencies is primarily communicated through the HCOs. OPM holds regular
meetings of the HCOs to discuss agency concerns. However, executive branch
agency officials said OPM does not always act to address these concerns.
OPM also gathers agency feedback through the CHCO Council and executive
resource forums. OPM's current feedback mechanisms are important and
valuable, but they could be supplemented, though not replaced, with more
formal outreach. Formal feedback mechanisms can ensure that OPM gathers a
full range of views by giving everyone an opportunity to comment. Formal
feedback also provides a mechanism for collecting the views of clients and
employees in one place, allowing OPM to track and report progress over
time.

^35 [43]GAO-03-669 .

^36GAO, Human Capital: Symposium on Designing and Managing Market-Based
and More Performance-Oriented Pay Systems, [44]GAO-05-832SP (Washington,
D.C.: July 27, 2005).

Also, OPM does not gather feedback from senior executives who are directly
affected by the new performance appraisal systems and does not require
agencies to survey senior executives, even though agencies are approaching
the fourth year of implementation. Director Springer said OPM has not
surveyed members of the SES about their attitudes towards the new system.
In September 2006, she said it would be premature to conduct a survey
before the system takes hold, but she did not say when the timing might be
appropriate. Also, the 2006 FHCS, OPM's most recent survey that gathers
employees' perceptions of federal human capital practices in their
agencies, did not include any questions specifically designed to gather
feedback on changes to senior executive performance systems. However,
Director Springer said OPM plans to analyze a recent survey of SES members
conducted by the Senior Executive Association to obtain the experience and
views of SES members on the new executive systems.^37

Going forward, OPM should recognize the usefulness of agencies' and senior
executive employees' views on the certification process and identify a
systematic approach to obtain feedback on this and future human capital
reforms. Feedback mechanisms, such as survey or focus groups, could help
OPM identify what its customers think OPM is doing well, and where OPM
needs to improve. Once obtained, feedback information should be considered
in developing new agency guidance and OPM should take steps to address any
specific agency concerns, as appropriate.

^37The Senior Executive Association (SEA) is a nonprofit professional
association that promotes public service and advocates the interests of
career federal executives (both active and retired). SEA conducted a
voluntary survey to solicit SES members' experience with the new SES
system and involvement in its implementation, how the new system affected
the member, perceptions of how the system affected the SES members'
colleagues, and views on how the new system might affect the future of
human resources management in the federal government.

Track Progress to Ensure Accountability

High-performing organizations understand they need to continuously review
and revise their performance management systems to achieve results and
accelerate change. These organizations continually review and revise their
human capital management systems based on data-driven lessons learned and
changing needs in the environment. We have reported that agencies seeking
human capital reform should consider doing evaluations that are broadly
modeled on the evaluation requirements of the OPM demonstration
projects.^38 Under the demonstration project authority, agencies must
evaluate and periodically report on results, implementation of the
demonstration project, cost and benefits, impacts on veterans and other
equal employment opportunity groups, adherence to merit system principles,
and the extent to which the lessons from the project can be applied
governmentwide. Such an evaluation could ensure accountability, facilitate
congressional oversight, allow for any midcourse corrections, and assist
the agency in benchmarking its progress with other efforts.

Also, monitoring the implementation of new pay systems is important
because unintended consequences may arise. Organizations have found they
should be open to refining their systems. For example, we have reported
that in order to spread the pay increases among as many employees as
possible, the Federal Deposit Insurance Corporation (FDIC) found that
managers tended not to award merit pay increases to top-performing
employees when they were to be promoted in the career ladder and as a
result, these high-performing employees were not getting the merit pay
increases they deserved. FDIC recognized that this unintended consequence
needed to be corrected in future iterations of the pay system and managers
needed help in learning how to make the necessary distinctions in
employees' contributions.^39

^38 [45]GAO-05-1048T .

^39 [46]GAO-05-1048T .

As we noted in our September 2006 testimony, OPM needs to carefully
monitor the implementation of agencies' senior executive performance
management systems, especially those that have provisional
certification.^40 This is because, as also noted earlier in this report,
agencies with provisional certification have only met four of nine
required criteria for certification and can still receive the pay
flexibilities of the new system. In other words, agencies can receive the
benefits of the new pay-for-performance system without meeting all of its
requirements and having safeguards in place. We testified in October 2005
that in our view such provisional certifications should not be an option
under any broad-based classification and compensation reform proposal.^41

Although OPM does not have an evaluation strategy, it is taking steps to
monitor how agencies are making meaningful distinctions in senior
executive performance. Such distinctions are required by statute and are
one of the nine criteria for certifying agencies' senior executive
performance appraisal systems (as shown in app. II). Once agencies have
provisional or full certification, OPM monitors this criterion by
measuring the distributions of agencies' performance ratings and pay. This
information helps OPM determine if agencies are making meaningful
distinctions among the performance of their senior executives. Such
distinctions as part of an effective performance management system are
important because they allow the organization's leadership to
appropriately reward those who perform at the highest level.

In its Report on Senior Executive Pay for Performance for Fiscal Year
2005, OPM stated that the data indicate that federal agencies are taking
seriously the requirement to develop rigorous appraisal systems and to
make meaningful distinctions in performance ratings and pay. All reporting
agencies have moved away from pass/fail appraisal systems and now have at
least one performance level above "fully successful." In fiscal year 2005,
43 percent of career SES governmentwide were rated at the highest
performance level, compared to 75 percent in 2003 prior to the
implementation of the SES pay-for-performance system. Further, OPM
reported for fiscal year 2005 that the percentage of SES rated at the
highest performance level declined 16 percent from the prior year. OPM
also reported that the largest increases in salary went to SES rated at
the highest performance level. Although SES pay and performance award
amounts vary by agency based on factors such as compensation strategy,
funding, and agency performance levels, OPM believes these general trends
suggest a further refinement may be occurring in the process of
distinguishing outstanding performers.

^40 [47]GAO-06-1125T .

^41 [48]GAO-06-142T .

Developing an evaluation strategy that works within OPM's existing
required systems--such as the Human Capital Assessment and Accountability
Framework (HCAAF)^42--is one approach that OPM can take to track agencies'
progress in implementing their senior executive performance systems as
well as hold them accountable for meeting OPM's certification criteria.
For example, DOD officials suggested that OPM could work with agencies to
develop metrics under the HCAAF to determine whether agency performance
management systems were making meaningful distinctions based on relative
performance or other such important criteria. These metrics could be
reported in current systems, such as the President's Management Agenda
(PMA).^43

Because OPM carries out its role in a decentralized environment where the
results of its efforts largely take place at federal agencies outside its
direct control, it is particularly important that OPM develop a strategy
to track agencies' progress in meeting its human capital reform goals. OPM
could require evaluations that are broadly modeled on the evaluation
requirements of the OPM demonstration projects. It can work within its
currently required systems to make reporting requirements less onerous and
part of agencies' routines. As we testified in September 2006, in the
future, OPM should maintain a focus on continuous improvement of agency
systems by monitoring the certification process, determining whether any
obstacles are impeding agencies from receiving full certification, and
taking appropriate measures to address them.^44

42The HCAAF is a framework that OPM has developed over the last several
years to help agencies develop and implement effective human capital
management systems and improve their human capital management practices.
The HCAAF fuses strategic human capital management to merit system
principles and other civil service laws, rules, and regulations.

^43The PMA has identified five governmentwide initiatives that are
interrelated and support each other--improved financial performance,
strategic management of human capital, budget and performance integration,
electronic government, and competitive sourcing. OPM is responsible for
monitoring agency progress of the human capital initiative.

^44 [49]GAO-06-1125T .

Conclusions

Significant reforms are already underway to modernize the federal
government's human capital management systems to better position agencies
to meet the challenges of the 21st century. OPM is taking steps to better
prepare itself and agencies for governmentwide human capital reform
through the implementation of the senior executive performance appraisal
system certification process, other performance management initiatives,
such as its PAAT and beta sites, and other governmentwide human capital
initiatives. These reform efforts present an opportunity for OPM to
evaluate and learn from its approach to implementing these
initiatives--lessons that can be applied to ongoing and future human
capital reforms. OPM's workforce and succession planning efforts are also
vital to ensuring it has the internal capacity to lead and implement
reforms. This includes building and maintaining the needed skills and
competencies for OPM's evolving role in assisting agencies. While OPM has
taken steps through its planning efforts to assess its workforce needs, it
can better prepare its workforce by reexamining its competencies in light
of its updated strategic management framework in order to meet future
demands.

Agencies have raised concerns with OPM's workforce capacity in general,
and more specific concerns with OPM's implementation of the senior
executive performance appraisal system. These include the lack of clear
and timely guidance, the need for more sharing of best practices, and the
year-end time crunch agencies face gathering the required information for
OPM to certify their systems. Further, OPM does not obtain formal feedback
from agencies on the implementation of the executive systems to assist OPM
in better understanding agency concerns and the difficulties they face
with implementation. Although OPM recognizes the value of obtaining
employees' views on reform efforts, as it encouraged with past
demonstration projects, it has not encouraged obtaining such feedback for
the executive performance system. In addition, having an evaluation
strategy to monitor agencies' overall results of the senior executive
performance system could help ensure accountability and provide
transparency for Congress, other agencies, and stakeholders.

Recommendations for Executive Action

To better align OPM's workforce skills and competencies for future human
capital reform efforts, we recommend that the Director of OPM:

           o Reexamine OPM's agencywide skills and competency assessment in
           light of its updated strategic management documents.

           To assist executive branch agencies in meeting the requirements
           for the certification of their senior executive performance
           appraisal systems, we recommend that the Director of OPM:

           o Develop and publish a timeline for the issuance of certification
           guidance. This timeline should be developed with the input of the
           CHCO Council and provide agencies with adequate time to adjust to
           any changes in guidance.

           o Evaluate alternatives that could remedy the year-end time
           compression that agencies face when trying to meet OPM application
           requirements and avoid a gap in certification.

           o Work with the CHCO Council to develop a formal mechanism for
           sharing leading practices for implementing human capital
           initiatives, such as the senior executive performance appraisal
           certification and other performance management reform initiatives.
           This forum should include an adequate range of examples and best
           practices so as not to promote one-size-fits-all solutions.

           o Develop a formal feedback mechanism to obtain agencies' views on
           OPM's implementation of the certification process. OPM should
           utilize this feedback to identify common agency concerns and
           develop action plans to address these concerns.

           o Work with executive branch agencies to develop a systematic
           approach for obtaining employee attitudes towards human capital
           reforms.

           o Develop a strategy to allow OPM, other executive agencies, and
           Congress to monitor the progress of implementation of the senior
           executive performance-based pay system.
			  
			  Agency Comments and Our Evaluation

           We provided a draft of this report to the Director of OPM for
           review and comment. We received a written response from the
           Director, which is reprinted in appendix IV. The Director stated
           that OPM has made progress toward achieving its operational and
           strategic goals, but neither agreed nor disagreed with our
           recommendations.

           Director Springer provided a number of informative comments
           describing progress OPM has made towards achieving its planned
           goals, and initiatives undertaken to assist federal agencies with
           meeting their hiring demands of the future. Director Springer said
           OPM has made progress towards achieving its operational and
           strategic goals since she became Director of OPM. The Director
           provided information that while beyond the scope of the report,
           nonetheless is helpful in understanding the context in which OPM
           is operating. Specifically, she commented that OPM associates have
           worked together and with agencies to achieve the objectives that
           are tied to OPM's Strategic and Operational Plan, 2006-2010, and
           since March 2006, OPM has achieved its plan's objectives, on time
           or ahead of schedule. Also, OPM provided a number of technical
           comments and, where appropriate, we have made changes to the
           report language to reflect these comments.

           We are sending copies of this report to the Director of OPM, the
           Director of OMB, and other interested parties. Copies will be made
           available to others upon request. This report is also available at
           no charge on GAO's Web site at http://www.gao.gov .

           If you or your staffs have any questions concerning this report,
           please contact me at (202) 512-6806. Contact points for our
           Offices of Congressional Relations and Public Affairs may be found
           on the last page of this report. GAO staff who made major
           contributions to this report are listed in appendix V.

           Sincerely yours,

           Brenda S. Farrell
			  Acting Director, Strategic Issues
			  
			  Appendix I: Scope and Methodology

           To identify lessons learned to inform the Office of Personnel
           Management's (OPM) capacity to lead and implement human capital
           reform, we reviewed OPM's implementation of the senior executive
           performance appraisal system certification process. We reviewed
           and analyzed key documents including the legislation that
           authorized the new senior executive performance-based pay system
           and the regulations for the appraisal system certification process
           that were jointly issued by OPM and the Office of Management and
           Budget (OMB). We also reviewed and analyzed the subsequent
           guidance issued by OPM to agencies to prepare their certification
           applications, policy memos from OPM to agencies, and other
           documentation related to the certification process. To gain an
           agency perspective of the certification process and to a limited
           degree on other performance management initiatives, such as the
           Performance Appraisal Assessment Tool (PAAT) and the performance
           management beta sites, we interviewed 22 of the 23 members of the
           Chief Human Capital Officers Council and/or their corresponding
           agency HR directors. The one agency that was not available for an
           interview provided us with written responses to our questions. In
           addition, we conducted interviews with OPM's five associate
           directors and other senior-level staff, such as the Chief
           Financial Officer and Chief Human Capital Officer, to obtain their
           views of OPM's management practices. We were briefed by the OPM
           Director and other OPM officials on the OPM Strategic and
           Operational Plan, 2006-2010 and aspects of OPM's human capital
           strategies and initiatives. We also interviewed staff from OMB
           related to their role in the performance appraisal system
           certification process.

           To evaluate OPM's workforce capacity, we interviewed OPM's former
           and current Chief Human Capital Officers and analyzed the OPM
           Strategic and Operational Plan, 2006-2010. To understand how OPM's
           workforce is aligned to support the implementation of potential
           reforms, we analyzed a number of internal OPM documents such as
           its August 2006 Corporate Leadership Succession Management Plan
           and A Plan for the Strategic Management of OPM's Human Capital
           fiscal years 2004-2007. As the Plan for the Strategic Management
           of OPM's Human Capital fiscal years 2006-2007 was issued at the
           conclusion of our review, we were not able to analyze this
           document.

           To evaluate OPM's efforts to build agency infrastructure, we
           reviewed documents related to OPM's PAAT and the performance
           management beta site initiatives. We selected these initiatives
           because of similarities to the certification process and their
           likelihood to yield tangible lessons related to OPM's capacity to
           lead future reforms.

           To evaluate OPM's feedback mechanisms, we reviewed survey
           questions included in the 2004 and 2006 Federal Human Capital
           Survey (FHCS). The 2006 survey was launched in June 2006 and
           results are not yet available.

           To assess OPM's measures for tracking progress, we analyzed
           operational goals in the OPM Strategic and Operational Plan,
           2006-2010. We also reviewed OPM's measures of senior executive
           performance ratings and pay in its Report on Senior Executive
           Service Pay for Performance for Fiscal Year 2005.

           We leveraged our work that resulted in our June 2006 testimony on
           OPM's internal capacity.^1 We used the 2004 FHCS, the latest
           available survey data, and summaries of OPM's 2005 focus groups to
           assess employee views of OPM's organizational capacity. We
           reviewed OPM's analysis of its 2004 FHCS results and conducted our
           own analyses of survey results using 2002 and 2004 FHCS data sets
           provided to us by OPM. On the basis of our examination of the data
           and discussions with OPM officials concerning survey design,
           administration, and processing, we determined that the data were
           sufficiently reliable for the purpose of our review. We analyzed
           summaries of OPM employee focus groups that OPM conducted in fall
           2005 to understand factors contributing to employees' responses on
           the 2004 FHCS. We used the participant comments from these focus
           groups to illustrate employee perspectives. We also analyzed the
           May 2006 action plans developed by OPM to address issues
           identified in the focus groups.

           Other documents reviewed included our previous work related to
           OPM, high-performing organizations, organizational transformation,
           and human capital management reforms. We also reviewed GAO's
           previous recommendations on a range of issues related to OPM's
           human capital leadership role and internal management challenges.

           We conducted our work from October 2005 to September 2006 in
           accordance with generally accepted government auditing standards.
			  
^1 [51]GAO-06-861T .
			  
			  Appendix II: Description of the Senior Executive Performance-based
			  Pay System Certification Process

           The new senior executive pay system raises the cap on base pay and
           total compensation. For 2006, the caps are $152,000 for base pay
           (Level III of the Executive Schedule) with a senior executive's
           total compensation not to exceed $183,500 (Level I of the
           Executive Schedule). If an agency's senior executive performance
           appraisal system is certified by the Office of Personnel
           Management (OPM) and the Office of Management and Budget (OMB)
           concurs, the caps are increased to $165,200 for base pay (Level II
           of the Executive Schedule) and $212,100 for total compensation
           (the total annual compensation payable to the Vice President).

           To qualify for senior executive pay flexibilities, agencies'
           performance appraisal systems are evaluated against nine
           certification criteria. As shown in table 2, the certification
           criteria jointly developed by OPM and OMB are broad principles
           that position agencies to use their pay systems strategically to
           support the development of a stronger performance culture and the
           attainment of the agency's mission, goals, and objectives.

           There are two levels of performance appraisal system certification
           available to agencies: full and provisional. To receive full
           certification, the design of the systems must meet the nine
           certification criteria and agencies must provide documentation of
           prior performance ratings to demonstrate compliance with the
           criteria. Full certification lasts for 2 calendar years. Agencies
           can receive provisional certification if they have designed but
           not yet fully implemented a senior executive performance appraisal
           system, or do not have a history of performance ratings that meets
           the certification criteria. Provisional certification lasts for 1
           calendar year.

Table 2: Senior Executive Performance Appraisal System Certification
Criteria

Source: GAO analysis of OPM and OMB regulations.

OPM's role in the certification process begins when an agency submits a
certification application to OPM. If fully certified, the certification is
good for the remainder of the calendar year in which the agency applied,
as well as all of the following calendar year. If provisionally certified,
an agency's certification is only good for the calendar year in which it
applied. For example, if an agency is provisionally certified in October
2005, its certification would expire in December 2005.

To ensure the agency's submission is complete, the agency's OPM
contact--the Human Capital Officer (HCO)--first verifies that the
application contains the required materials and documents. If complete,
the HCO sends copies to the two OPM divisions responsible for reviewing
the application, the Human Capital Leadership and Merit System
Accountability (HCLMSA) division and the Strategic Human Resources Policy
(SHRP) division, and an additional copy to OMB. The agency's submission is
reviewed independently by representatives within HCLMSA and SHRP to bring
different perspectives to the review.

The submissions are evaluated against the nine certification criteria, but
each review team has its own method for analyzing the application. After
an initial review, the reviewers from HCLMSA and SHRP hold an informal
meeting to discuss the submission. After a more thorough review, the
reviewers meet again in a formal panel along with the agency's HCO and
decide whether they have enough information to reach a certification
decision about the agency. If the panel concludes there is not enough
information to reach a decision, the HCO will request that the agency
provide any missing or additional supporting information. If the panel
decides there is sufficient information to reach a decision, it will
either certify or reject the application.

When an application is rejected, the HCO works with the agency to help
modify its performance appraisal system so that it meets the criteria. If
the application is approved by OPM, the HCO contacts OMB for concurrence.
OMB uses the same nine criteria to evaluate agency applications, but
primarily focuses on measures of agency performance. If OMB concurrence is
not achieved, the HCO works with the agency to address OMB's concerns
until resolution is reached. Once OMB concurs, the Director of OPM
certifies the agency's performance appraisal system and the agency is
formally notified with a letter. The HCO also provides additional comments
to the agency on their system and identifies any improvement needs. For
example, these comments may direct the agency to focus more on making
meaningful distinctions in performance. Figure 1 provides an overview of
the certification process.

Figure 1: Overview of Senior Executive Performance Appraisal System
Certification Process

Appendix III: Agency Certification Status for Calendar Years 2004, 2005,
and 2006 as of October 2006

Source: GAO analysis based on OPM data.

aAgency did not submit an appraisal system application, submitted an
application but was not approved, or withdrew an application for OPM's
review.

Appendix IV: Comments from the Office of Personnel Management

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Brenda S. Farrell, (202) 512-6806 or [52][email protected] .

Acknowledgments

In addition to the contact named above, Trina Lewis, Assistant Director;
Thomas Beall; Carole J. Cimitile; William Colvin; Elizabeth Curda; S. Mike
Davis; William Doherty; Charlene Johnson; Jeffrey McDermott; Michael
Volpe; Katherine H. Walker; and Gregory H. Wilmoth made major
contributions to this report.

(450440)

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Highlights of [60]GAO-07-90 , a report to congressional requesters

January 2007

OFFICE OF PERSONNEL MANAGEMENT

Key Lessons Learned to Date for Strengthening Capacity to Lead and
Implement Human Capital Reforms

As the agency responsible for the federal government's human capital
initiatives, the Office of Personnel Management (OPM) must have the
capacity to successfully guide human capital transformations necessary to
meet the governance challenges of the 21^st century. Given this key role,
GAO was asked to assess OPM's capacity to lead further reforms. In June
2006, GAO testified on several management challenges that OPM faces. This
report--the second in a series--supplements that testimony and, using the
new senior executive performance-based pay system as a model for
understanding OPM's capacity to lead and implement reform, identifies
lessons learned that can inform future reforms. GAO analyzed relevant laws
and documents, and obtained views from the Chief Human Capital Officers
(CHCO) Council and human resource directors, the Office of Management and
Budget (OMB) staff, and OPM officials.

[61]What GAO Recommends

GAO is making recommendations to the Director of OPM to improve OPM's
capacity for future reforms by reexamining agencywide skills, and to
address issues specific to the senior executives' pay systems, such as
sharing best practices and tracking progress towards goals. In commenting
on a draft of this report, OPM stated it has made progress toward
achieving its operational and strategic goals, but neither agreed nor
disagreed with GAO's recommendations.

The congressionally authorized senior executive performance-based pay
system, implemented in 2004, provides an opportunity to learn from
experiences gained and apply those lessons to the design and
implementation of future human capital reforms. Under the
performance-based system, before an agency can receive the new pay
flexibilities, OPM, with concurrence from OMB, must certify that the
agency's appraisal system meets certain criteria. OPM is likely to play a
similar leadership and oversight role for future reforms.

Lessons Learned from the Performance-based System and Other Human Capital
Initiatives

Source: GAO analysis.

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