oversight

GAO: Additional Human Capital Flexibilities Are Needed

Published by the Government Accountability Office on 2003-07-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                            United States General Accounting Office

GAO                         Testimony
                            Before the Subcommittee on Civil Service and Agency
                            Organization, Committee on Government Reform, House
                            of Representatives


For Release on Delivery
Expected at 2:00 p.m. EDT
Wednesday, July 16, 2003
                            GAO
                            Additional Human Capital
                            Flexibilities Are Needed
                            Statement of David M. Walker
                            Comptroller General of the United States




GAO-03-1024T
                            A
                                                July 16, 2003


                                                GAO

                                                Additional Human Capital Flexibilities Are
Highlights of GAO-03-1024T, a testimony         Needed
before the Subcommittee on Civil Service
and Agency Organization, Committee on
Government Reform, House of
Representatives




The Subcommittee seeks GAO’s                    As an arm of the legislative branch, GAO exists to support the Congress in
views on its latest human capital               meeting its constitutional responsibilities and to help improve the
proposal that is slated to be                   performance and ensure the accountability of the federal government for the
introduced as a bill entitled the               American people. Unlike many executive branch agencies, which have
GAO Human Capital Reform Act of                 either recently received or are just requesting new broad-based human
2003.
                                                capital tools and flexibilities, GAO has had certain human capital tools and
                                                flexibilities for over two decades. GAO’s latest proposal combines diverse
                                                initiatives that, collectively, should further GAO’s ability to enhance its
GAO believes that its proposal is               performance, assure its accountability, and help ensure that it can attract,
well reasoned and reasonable.                   retain, motivate, and reward a top-quality and high-performing workforce
Although GAO’s request for                      currently and in future years.
authority to adjust its annual pay
system separate from the executive              Specifically, GAO is requesting that the Congress (1) make permanent GAO’s
branch appears broad based, there
                                                3-year authority to offer early outs and buyouts, (2) allow GAO to set its own
are compelling reasons why GAO
ought to be given this authority.               annual pay adjustment system separate from the executive branch,
These include the fact that GAO                 (3) permit GAO to set the pay of an employee demoted as a result of
already has a hybrid pay system                 workforce restructuring or reclassification to keep his/her basic pay but to
established by the authority the                set future increases consistent with the new position’s pay parameters,
Congress granted it over two                    (4) provide authority to reimburse employees for some relocation expenses
decades ago, the proposed                       when that transfer has some benefit to GAO but does not meet the legal
authority is not radical if viewed in           requirements for reimbursement, (5) provide authority to place upper-level
the light of authorities already                hires with fewer than 3 years of federal experience in the 6-hour leave
granted and requested by other                  category, (6) authorize an executive exchange program with the private
agencies, and GAO already has a                 sector, and (7) change GAO’s legal name from the “General Accounting
number of key systems and
                                                Office” to the “Government Accountability Office.”
safeguards in place and has plans
to build in additional safeguards if
granted the authority.                          GAO has used the narrowly tailored flexibilities granted by the Congress
                                                previously in Public Law 106-303, the GAO Personnel Flexibilities Act,
GAO has conducted extensive                     responsibly, prudently, and strategically. GAO believes that it is vitally
external and internal outreach                  important to its future to continue modernizing and updating its human
efforts on its latest human capital             capital policies and system in light of the changing environment and
proposal. GAO respectfully                      anticipated challenges ahead. GAO’s proposal represents a logical
requests the Subcommittee’s                     incremental advancement in modernizing GAO’s human capital policies.
support and prompt passage by the               Based on employee feedback, there is little or no concern relating to most of
Congress.                                       the proposal’s provisions. Although some elements of GAO’s initial straw
                                                proposal were controversial (e.g., GAO’s pay adjustment provision), the
                                                Comptroller General has made a number of changes, clarifications, and
                                                commitments to address employee concerns. While GAO believes that some
                                                employees remain concerned about the pay adjustment provision, GAO also
                                                believes that employee concerns have been reduced considerably due to the
                                                clarifications, changes, and commitments the Comptroller General has
                                                made. Given GAO’s human capital infrastructure and unique role in leading
www.gao.gov/cgi-bin/getrpt?GAO-03-1024T.
                                                by example in major management areas, the rest of the federal government
To view the full product, including the scope   can benefit from GAO’s pay system experience.
and methodology, click on the link above.
For more information, contact Sallyanne
Harper at (202) 512-5800 or
harpers@gao.gov.
                       Madam Chairwoman and Members of the Subcommittee:

                       I am pleased to be here today to discuss GAO’s latest human capital
                       proposal. Chairwoman Davis, we at GAO appreciate your support of our
                       proposal and your leadership in seeking additional sponsors for the bill you
                       plan to introduce, the GAO Human Capital Reform Act of 2003.

                       As I have testified on many occasions, strategic human capital management
                       must be the centerpiece of any serious government transformation effort.
                       A key component of this is modern, effective, and credible human capital
                       policies, which are critical to the successful functioning of any enterprise,
                       both public and private. As the Chief Executive Officer and primary
                       steward of GAO, I am not just responsible for GAO’s current economy,
                       efficiency, and effectiveness, I am also responsible for ensuring that we are
                       well positioned to serve our congressional clients, maximize our
                       performance, and assure our accountability in the future.

                       With this important responsibility in mind, I asked this committee and
                       others over 3 years ago to grant GAO certain additional narrowly tailored
                       human capital authorities. In enacting Public Law 106-303, known as the
                       GAO Personnel Flexibilities Act, the Congress granted GAO certain
                       flexibilities, which we have used responsibly to help strategically reshape
                       the organization in order to better support the Congress and the American
                       people. After reviewing the range and limits of our existing administrative
                       and legal authorities, I have concluded that we now need to seek from the
                       Congress additional human capital flexibilities in order for GAO to: ensure
                       quality service to the Congress; continue leading by example in the
                       government transformation, in general, and human capital reform areas in
                       particular; and continue to attract, retain, motivate, and reward a quality
                       and high- performing workforce, both currently and in future years. We
                       believe that our proposal is well reasoned and reasonable, especially if
                       viewed in the light of authorities already granted and requested by other
                       agencies and the extensive external and internal outreach efforts we have
                       conducted. We also respectfully request your support and prompt passage
                       by the Congress.



GAO: A Unique Agency   As an arm of the legislative branch, GAO exists to support the Congress in
                       meeting its constitutional responsibilities and to help improve the
with a Hybrid System   performance and ensure the accountability of the federal government for
                       the benefit of the American people. Today, GAO is a multidisciplinary
                       professional services organization, comprised of about 3,250 employees,



                       Page 1                                                           GAO-03-1024T
that conducts a wide range of financial and performance audits, program
evaluations, management reviews, investigations, and legal services
spanning a broad range of government programs and functions. GAO’s
work covers everything from the challenges of securing our homeland, to
the demands of an information age, to emerging national security threats,
and the complexities of globalization. We are committed to transforming
how the federal government does business and to helping government
agencies become organizations that are more results oriented and
accountable to the public. We are also committed to leading by example in
all major management areas.

Given GAO’s role as a key provider of information and analyses to the
Congress, maintaining the right mix of technical knowledge and subject
matter expertise as well as general analytical skills is vital to achieving the
agency’s mission. Carrying out GAO’s mission today is a multidisciplinary
staff reflecting the diversity of knowledge and competencies needed to
deliver a wide array of products and services to support the Congress. Our
mission staff—at least 67 percent of whom have graduate degrees—hold
degrees in a variety of academic disciplines, such as accounting, law,
engineering, public administration, economics, and social and physical
sciences. I am extremely proud of our GAO employees and the difference
that they make for the Congress and the nation. They make GAO the
world-class organization that it is, and I think it is fair to say that while they
account for about 80 percent of our costs, they constitute 100 percent of
our real assets.

Because of our unique role as an independent overseer of federal
expenditures, fact finder, and honest broker, GAO has evolved into an
agency with hybrid systems. This is particularly evident in GAO’s
personnel and performance management systems. Unlike many executive
branch agencies, which have either recently received or are just requesting
new broad-based human capital tools and flexibilities, GAO has had certain
human capital tools and flexibilities for over two decades. As a result, we
have been able to some extent to operate our personnel system with a
degree of independence that most agencies in the executive branch do not
have. For example, we are excepted from certain provisions of Title 5,
which governs the competitive service, and we are not subject to Office of
Personnel Management (OPM) oversight.

Until 1980, our personnel system was indistinguishable from those of
executive branch agencies—that is, GAO was subject to the same laws,
regulations, and policies as they were. However, with the expansion of



Page 2                                                               GAO-03-1024T
GAO’s role in congressional oversight of federal agencies and programs,
concerns grew about the potential for conflicts of interest. Could GAO
conduct independent and objective reviews of executive branch agencies,
such as OPM, when these agencies had the authority to review GAO’s
internal personnel activities? As a result, GAO worked with the Congress
to pass the GAO Personnel Act of 1980, the principal goal of which was to
avoid potential conflicts by making GAO’s personnel system more
independent of the executive branch.

Along with this independence, the act gave GAO greater flexibility in hiring
and managing its workforce. Among other things, it granted the
Comptroller General authority to

• appoint, promote, and assign employees without regard to Title 5
  requirements in these areas;

• set employees’ pay without regard to the federal government’s General
  Schedule (GS) pay system’s classification standards and requirements;
  and

• establish a merit pay system for appropriate officers and employees.

By excepting our agency from the above requirements, the GAO Personnel
Act of 1980 allowed us to pursue some significant innovations in managing
our people. One key innovation was the establishment of a “broad
banding,” or “pay banding,” approach for classifying and paying our Analyst
and Attorney workforce in 1989. This was coupled with the adoption of a
pay for performance system for this portion of our workforce. Therefore,
while other agencies are only now requesting the authority to establish
broad banding and pay for performance systems, GAO has had almost 15
years of experience with such systems.

Although GAO’s personnel and pay systems are not similar to those of
many executive branch agencies, I must emphasize that in important ways,
our human capital policies and programs are very much and will continue
to remain similar to those of the larger federal community. GAO’s current
human capital proposal will not change our continued support for certain
national goals (e.g., commitment to federal merit principles, protection
from prohibited personnel practices, employee due process through a
specially created entity—the Personnel Appeals Board (PAB), and
application of veterans’ preference consistent with its application in the
executive branch for appointments and all appropriate reductions-in-



Page 3                                                          GAO-03-1024T
force). Furthermore, our pay system is and will continue to be consistent
with the statutory principle of equal pay for equal work while making pay
distinctions on the basis of an individual’s responsibilities and
performance. In addition, we are covered and will remain covered by Title
VII of the Civil Rights Act, which forbids employment discrimination. At
GAO, we also emphasize opportunity and inclusiveness for a diverse
workforce and have zero tolerance for discrimination of any kind. We have
taken and will continue to take disciplinary action when it “will promote
the efficiency of the service”—which for us includes such things as GAO’s
ability to do its work and accomplish its mission.

Although we are not subject to OPM oversight, we are nevertheless subject
to the oversight of the Congress including our appropriations
committees—the Senate Committee on Appropriations’ Subcommittee on
the Legislative Branch and the House Committee on Appropriations’
Subcommittee on Legislative—and our oversight committees—the Senate
Committee on Governmental Affairs and the House Committee on
Government Reform. In addition, GAO’s management actions are subject
to the review of an independent five member board, the Personnel Appeals
Board, which performs functions similar to those provided by the Merit
Systems Protection Board for federal executive branch employees’
personnel grievances. The Congress authorized the establishment of the
PAB specifically for GAO in order to protect GAO’s independence as an
agency. As with other federal executive branch employees, our employees
have the right to appeal certain kinds of management actions including
removal, suspension for more than 14 days, reductions in pay or grade,
furloughs of not more than 30 days, a prohibited personnel practice, an
action involving prohibited discrimination, a prohibited political activity, a
within-grade denial, unfair labor practices or other labor relations issue.
However, they do so to the PAB rather than the MSPB.

While we currently do not have any bargaining units at GAO, our
employees are free to join employee organizations, including unions. In
addition, we engage in a range of ongoing communication and coordination
efforts to empower our employees while tapping their ideas. For example,
we regularly discuss a range of issues of mutual interest and concern with
our democratically elected Employee Advisory Council (EAC). Chris
Keisling, who is a Band III field office representative of the EAC, is
testifying with me today. In addition, I consult regularly with our managing
directors on issues of mutual interest and concern. In that spirit, I will
consult with the managing directors and the EAC before implementing the
provisions related to our human capital proposal. As we did with the



Page 4                                                            GAO-03-1024T
                        flexibilities granted it under Public Law 106-303, the GAO Personnel
                        Flexibilities Act, we will implement the authorities granted under this
                        provision of our proposal only after issuing draft regulations and providing
                        all employees notice and an opportunity for comment. Specifically, for the
                        authorities granted to us under Public Law 106-303, we posted the draft
                        regulations on our internal Web site and sent a notice to all GAO staff
                        advising them of the draft regulations and seeking their comments.



Key Elements of GAO’s   GAO’s proposal combines diverse initiatives that, collectively, should
                        further GAO’s ability to enhance our performance, assure our
Proposal                accountability, and help ensure that we can attract, retain, motivate, and
                        reward a top quality and high-performing workforce currently and in future
                        years. These initiatives should also have the benefit of helping guide other
                        agencies in their human capital transformation efforts. Specifically, we are
                        requesting that the Congress provide us the following additional human
                        capital tools and flexibilities:

                        • make permanent GAO’s 3-year authority to offer voluntary early
                          retirement and voluntary separation payments;

                        • allow the Comptroller General to adjust the rates of basic pay of GAO on
                          a separate basis than the annual adjustments authorized for employees
                          of the executive branch;

                        • permit GAO to set the pay of an employee demoted as a result of
                          workforce restructuring or reclassification at his or her current rate
                          with no automatic annual increase to basic pay until his or her salary is
                          less than the maximum rate of their new position;

                        • provide authority in appropriate circumstances to reimburse employees
                          for some relocation expenses when that transfer does not meet current
                          legal requirements for entitlement to reimbursement but still benefits
                          GAO;

                        • provide authority to put upper-level hires with less than 3 years of
                          federal experience in the 6-hour leave category;

                        • authorize an executive exchange program with private sector
                          organizations working in areas of mutual concern and involving areas in
                          which GAO has a supply-demand imbalance; and




                        Page 5                                                          GAO-03-1024T
                         • change GAO’s legal name from the “General Accounting Office” to the
                           “Government Accountability Office.”

                         I will go into more detail later in my testimony on the details and rationale
                         for each of these proposals.



Process for Developing   In developing our proposal, we used a phased approach that involved
                         (1) developing a straw proposal, (2) vetting the straw proposal broadly
the Proposal             both externally and internally, and (3) making appropriate adjustments
                         based on comments and concerns raised during the vetting process. As we
                         have previously testified, many of the management tools and flexibilities
                         we needed to pursue modern human capital management approaches are
                         already available to us and we have used them. We have chosen to come to
                         the Congress for legislation only where the tools and flexibilities we have
                         were inadequate for addressing the challenges we faced. For example, the
                         Congress enacted Public Law 106-303 to provide us with certain narrowly
                         tailored flexibilities we needed to reshape our workforce and establish
                         senior-level technical positions in critical areas. These flexibilities were
                         needed to help GAO address the past decade’s dramatic downsizing
                         (approximately 40 percent from 1992 through 1997) combined with a
                         significant increase in the retirement-eligible workforce that jeopardized
                         our ability to perform our mission in the years ahead.

                         In developing our preliminary proposal, we gathered suggestions for
                         addressing GAO’s human capital challenges as well as challenges faced by
                         the rest of the federal government, discussed and debated them internally,
                         and compiled a preliminary list of proposals. We received a number of
                         viable proposals that we separated into two groups: (1) proposals that
                         would be more applicable government-wide and (2) proposals GAO should
                         undertake. I had our Office of General Counsel review the proposals GAO
                         should undertake to determine whether we needed to seek legislative
                         authority to implement them or whether I could implement them under the
                         Comptroller General’s existing authority.

                         Mindful of the need to keep the Congress appropriately informed, my staff
                         and I began our outreach to GAO’s appropriations and oversight
                         committees on the need for additional human capital flexibilities beginning
                         late last year. In early spring of this year, we shared with these committees
                         a confidential draft of a preliminary draft proposal. We also advised them
                         that we planned to conduct a broad range of outreach and consultation on
                         the proposal with our employees and other interested parties and that we



                         Page 6                                                           GAO-03-1024T
would send them our revised legislative proposal at a later date. We
conducted an extensive outreach and consultation effort with members of
the Congress, including chairmen and ranking minority members of our
appropriations and oversight committees and a number of local delegation
members; congressional staff; the Director of OPM; the Deputy Director for
Management of the Office of Management and Budget; public sector
employee associations and unions; and various “good government”
organizations.

Within GAO, members of the Executive Committee (EC), which includes
our Chief Operating Officer, our General Counsel, our Chief Mission
Support Officer and me, engaged in an extensive and unprecedented range
of outreach and consultation with GAO employees. This outreach included
numerous discussions with our managing directors, who manage most of
GAO’s workforce, and members of the EAC.

The EAC is an important source of input and a key communications link
between executive management and the constituent groups its members
represent. Comprising employees who represent a cross-section of the
agency, the EAC meets at least quarterly with me and members of our
senior executive team. The EAC’s participation is an important source of
front-end input and feedback on our human capital and other major
management initiatives. Specifically, EAC members convey the views and
concerns of the groups they represent, while remaining sensitive to the
collective best interest of all GAO employees; propose solutions to
concerns raised by employees; provide input to and comment on GAO
policies, procedures, plans, and practices; and help to communicate
management’s issues and concerns to employees.

I have also used my periodic “CG chats,” closed circuit televised broadcasts
to all GAO employees, as a means of explaining our proposal and
responding to staff concerns and questions. Specifically, I have held two
televised chats to inform GAO staff about the proposal. One of these chats
was conducted in the form of a general listening session, open to all
headquarters and field office staff, featuring questions from members of
the EAC and field office employees. I have also discussed the proposal
with the Band IIs (GS-13-14 equivalents) in sessions held in April 2003, and
with our Senior Executive Service (SES) and Senior Level members at our
May off-site meeting. In addition to my CG chats, I have personally held a
number of listening sessions, including a session with members of our
Office of General Counsel, two sessions with our administrative support
staff, and sessions with staff in several field offices. Furthermore, the Chief



Page 7                                                            GAO-03-1024T
                    Operating Officer represented me in a listening session with Band I field
                    office personnel. Finally, I have also personally received and considered a
                    number of E-mails, notes, and verbal comments on the human capital
                    proposal.

                    I would like to point out to others seeking human capital flexibilities that
                    the outreach process, while necessary, is indeed time-consuming and
                    requires real and persistent commitment on the part of an agency’s top
                    management team. In order for the process to work effectively, it also
                    requires an ongoing education and dialogue process that will, at times,
                    involve candid, yet constructive, discussion between management and
                    employees. This is, however, both necessary and appropriate as part of the
                    overall change management process. To facilitate the education process on
                    the proposal, we posted materials on GAO’s internal website, including
                    Questions and Answers developed in response to employees’ questions and
                    concerns, for all employees to review. Unfortunately, others who have
                    sought and are seeking additional human capital flexibilities have not
                    employed such an extensive outreach process.



Nature of GAO       Based on feedback from GAO employees, there is little or no concern
                    relating to most of the provisions in our proposal. There has been
Employee Concerns   significant concern expressed over GAO’s proposal to decouple GAO’s pay
                    system from that of the executive branch. Some concerns have also been
                    expressed regarding the pay retention provision and the proposed name
                    change. As addressed below, we do believe, however, that these employee
                    concerns, have been reduced considerably due to the clarifications,
                    changes, and commitments resulting from our extensive outreach and
                    consultation effort.

                    On the basis of various forms of GAO employee feedback, it is not
                    surprising, since pay is important to all employees, that the provision that
                    has caused the most stir within GAO has been the pay adjustment
                    provision. Fundamentally, some of our employees would prefer to remain
                    with the executive branch’s GS system for various types of pay increases.
                    There are others close to retirement who are concerned with their “high
                    three” and how the modified pay system, when fully implemented, might
                    affect permanent base pay, which is the key component of their retirement
                    annuity computation. Overall, there is a great desire on the part of GAO
                    employees to know specifically how this authority would be implemented.




                    Page 8                                                          GAO-03-1024T
It is important to note that, even in the best of circumstances, it is difficult
to garner a broad-based consensus of employee support for any major pay
system changes. While it is my impression, based on employee feedback,
that we have made significant strides in allaying the significant initial
concerns expressed by employees regarding the pay adjustment provision,
I believe that some of these concerns will remain throughout
implementation. In addition, some can never be resolved because they
involve philosophical differences or personal interest considerations on
behalf of individual GAO employees.

GAO’s history with pay banding certainly is illustrative of how difficult it is
for an organization to allay employee fears even in the face of obvious
benefits. While history has proven that an overwhelming majority of GAO
employees have benefited from GAO’s decision to migrate our Analysts and
Attorneys into pay banding and pay for performance systems, there was
significant opposition by GAO employees regarding the decision to move
into these systems. The experience of the executive branch’s pay
demonstration projects involving federal science and technology
laboratories shows that employee support at the beginning of the pay
demonstration projects ranged from 34 percent to 63 percent. In fact, OPM
reports that it takes about 5 years to get support from two-thirds of
employees with managers generally supporting demonstrations at a higher
rate than employees.

Following the pay adjustment provision but a distant second in terms of
employee concern, has been the pay reclassification provision, which
would allow GAO employees demoted as a result of workforce
restructuring or reclassification to keep their basic pay rates; however,
future pay increases would be set consistent with the new positions’ pay
parameters. Currently, employees subject to a reduction-in-force or
reclassification can be paid at a rate that exceeds the value of their duties
for an extended period.

A distant third in terms of employee concern is the proposed name change
from the “General Accounting Office’ to the “Government Accountability
Office,” which would allow the agency’s title to more accurately reflect its
mission, core values, and work. My sense is that some GAO employees
who have been with GAO for many years have grown comfortable with the
name and may prefer to keep it. At the same time, I believe that a
significant majority of our employees support the proposed name change.
Importantly, all of our external advisory groups, including the Comptroller
General’s Advisory Council, consisting of distinguished individuals from



Page 9                                                             GAO-03-1024T
                       the public and private sectors, and the Comptroller General’s Educators
                       Advisory Council, consisting of distinguished individuals from the
                       academic community, and a variety of “good government” groups strongly
                       support the proposed name change.



Changes Made in        The members of the EC and I took our employees’ feedback seriously and
                       have seriously considered their concerns. Key considerations in our
Response to Employee   decision making were our institutional responsibility as leaders and
Feedback               stewards of GAO and the overwhelming support expressed through
                       anonymous balloting by our senior executives, who also serve as leaders
                       and stewards for GAO, for proceeding with all of the provisions of our
                       human capital proposal, including the pay adjustment provision.
                       Specifically, in a recent confidential electronic balloting of our senior
                       executives, support for each element of our proposal ranged from over 2 to
                       1 to unanimous, depending on the provision. Support for the proposed pay
                       adjustment provision was over 3 to 1, and support for the proposed pay
                       protection provision was over 4 to 1. Given this and other considerations,
                       ultimately, we decided to proceed with the proposal but adopted a number
                       of the suggestions made by employees in these sessions, including several
                       relating to the proposal to decouple GAO annual pay adjustments from
                       those applicable to many executive branch agencies.

                       A key suggestion adopted include a minimum 2-year transition period for
                       ensuring the smooth implementation of the pay provisions which would
                       also allow time for developing appropriate methodologies and issuing
                       regulations for notice and comment by all employees. Another key
                       suggestion adopted was the commitment to guarantee annual across the
                       board purchase power protection and to address locality pay
                       considerations to all employees rated as performing at a satisfactory level
                       or above (i.e., meeting expectations or above) absent extraordinary
                       economic circumstances or severe budgetary constraints. We have chosen
                       to implement this guarantee through a future GAO Order rather than
                       through legislative language because prior “pay protection” guarantees
                       relating to pay banding made by my predecessor, Comptroller General
                       Charles A. Bowsher, used this means effectively to document and
                       operationalize that guarantee. I have committed to our employees that I
                       would include this guarantee in my statement here today so that it could be
                       included as part of the legislative record. Additional safeguards relating to
                       our pay proposal are set forth below.




                       Page 10                                                          GAO-03-1024T
                       The following represents additional information regarding our specific
                       proposal.



Voluntary Early        Section 2 of our proposal would make permanent the authority of GAO
                       under section 1 and 2 of Public Law 106-303, the GAO Personnel
Retirement and         Flexibilities Act of 2000, to offer voluntary early retirements (commonly
Separation Incentive   termed “early outs”) and voluntary separation payments (commonly
                       termed “buyouts”) to certain GAO employees when necessary to realign
Payment Authorities    GAO’s workforce in order to meet budgetary or mission needs, correct skill
                       imbalances, or reduce high-grade positions. We believe that we have
                       behaved responsibly in exercising the flexibilities that the Congress
                       granted us and deserve a permanent continuation of these authorities. In
                       addition, the two flexibilities which we would like to be made permanent
                       are narrowly drawn and voluntary in nature, since the employees have the
                       right to decide if they are interested in being considered for the benefits.
                       Further, the provisions also have built in limits: no more than 10 percent of
                       the workforce in any one year can be given early outs and no more than 5
                       percent can be given buyouts.

                       GAO’s transformation effort is a work in progress, and for that reason, the
                       agency is seeking legislation to make the voluntary early retirement
                       provision in section 1 of the law permanent. While the overall number of
                       employees electing early retirement has been relatively small, GAO
                       believes that careful use of voluntary early retirement has been an
                       important tool in incrementally improving the agency’s overall human
                       capital profile. Each separation has freed resources for other uses, enabling
                       GAO to fill an entry-level position or to fill a position that will reduce a skill
                       gap or address other succession concerns. Similarly, we are seeking
                       legislation to make section 2—authorizing the payment of voluntary
                       separation incentives—permanent. Although GAO has not yet used its
                       buyout authority and has no plans to do so in the foreseeable future, we are
                       seeking to retain this flexibility. The continuation of this provision
                       maximizes the options available to the agency to deal with future
                       circumstances, which cannot be reasonably anticipated at this time.
                       Importantly, this provision seems fully appropriate since the Homeland
                       Security Act of 2002 provides most federal agencies with permanent early
                       out and buyout authority.

                       Public Law 106-303 required that GAO perform an assessment of the
                       exercise of the authorities provided under that law, which included the
                       authority for the Comptroller General to provide voluntary early retirement



                       Page 11                                                              GAO-03-1024T
                             and voluntary separation incentive payments. With your permission, I
                             would like to submit the assessment entitled Assessment of Public Law
                             106-303: The Role of Personnel Flexibilities in Strengthening GAO’s
                             Human Capital, issued on June 27, 2003, for the record. I will now
                             highlight for you our observations from that assessment on voluntary early
                             retirement and buyouts.



Voluntary Early Retirement   Public Law 106-303 also allows the Comptroller General to offer voluntary
                             early retirement to up to 10 percent of the workforce when necessary or
                             appropriate to realign the workforce to address budgetary or mission
                             constraints; correct skill imbalances; or reduce high-grade, supervisory, or
                             managerial positions. This flexibility represents a proactive use of early
                             retirement to shape the workforce to prevent or ameliorate future
                             problems. GAO Order 2931.1, Voluntary Early Retirement, containing the
                             agency’s final regulations, was issued in April 2001. Under the regulations,
                             each time the Comptroller General approves a voluntary early retirement
                             opportunity, he establishes the categories of employees who are eligible to
                             apply. These categories are based on the need to ensure that those
                             employees who are eligible to request voluntary early retirement are those
                             whose separations are consistent with one or more of the three reasons for
                             which the Comptroller General may authorize early retirements. Pursuant
                             to GAO’s regulations, these categories are defined in terms of one or more
                             of the following criteria:

                             • organizational unit or subunits,

                             • occupational series,

                             • grade or band level,

                             • skill or knowledge requirements,

                             • performance appraisal average,

                             • geographic location, or

                             • other similar factors that the Comptroller General deems necessary and
                               appropriate.

                             Since it is essential that GAO retain employees with critical skills as well as
                             its highest performers, certain categories of employees have been ineligible



                             Page 12                                                           GAO-03-1024T
under the criteria. Some examples of ineligible categories are employees
receiving retention allowances because of their unusually high or unique
qualifications; economists, because of the difficulty that the agency has
experienced in recruiting them; and staff in the information technology
area. In addition, employees with performance appraisal averages above a
specified level have not been eligible under the criteria.

To give the fullest consideration to all interested employees, however, any
employee may apply for consideration when an early retirement
opportunity is announced, even if he or she does not meet the stated
criteria. Furthermore, under our order, the Comptroller General may
authorize early retirements for these applicants on the basis of the facts
and circumstances of each case. The Comptroller General or his EC
designee considers each applicant and makes final decisions based on
GAO’s institutional needs. Only employees whose release is consistent
with the law and GAO’s objective in allowing early retirement are
authorized to retire early. In some cases, this has meant that an employee’s
request must be denied.

GAO held its first voluntary early retirement opportunity in July 2001.
Employees who were approved for early retirement were required to
separate in the first quarter of fiscal 2002. As required by the act,
information on the fiscal 2002 early retirements was reported in an
appendix to our 2002 Performance and Accountability Report. Another
voluntary early retirement opportunity was authorized in fiscal 2003, and
employees were required to separate by March 14, 2003. In anticipation of
the 3-year sunset on our authority to provide voluntary early retirements, I
have recently announced a final voluntary early retirement opportunity
under our current authority. Table 1 provides the data on the number of
employees separated by voluntary early retirement as of May 30, 2003.




Page 13                                                         GAO-03-1024T
Table 1: Summary Data on Voluntary Early Retirements

                                              Fiscal 2002                 Fiscal 2003                  Totals
Applications/Status                                      Percentage                Percentage                   Percentage
of applications                            Number            of total   Number         of total   Number            of total
Total applications submitted                        78         100.0        39           100.0       117              100.0
Approved applications                               72          92.3        37            94.8       109               93.1
Disapproved applications                            6            7.7         2             5.1          8               6.8
Approved applications withdrawn by
employees                                           18          23.0        12            30.7        30               25.6
Applicants separated by voluntary early
retirement                                          54          69.3        25            64.1        79               67.5
Source: GAO.


                                          As you can see from the table, of the 79 employees who separated from
                                          GAO through voluntary early retirement, 66, or 83.5 percent, were high-
                                          grade, supervisory, or managerial employees. High-grade, supervisory, or
                                          managerial employees are those who are GS-13s or above, if covered by
                                          GAO’s GS system; Band IIs or above, if covered by GAO’s banded systems
                                          for Analysts and Attorneys; or in any position in GAO’s SES or Senior-Level
                                          system.

                                          In recommending that GAO’s voluntary early out authority be made
                                          permanent, I would like to point to our progress in changing the overall
                                          shape of the organization. The 1990s were a difficult period for ensuring
                                          that GAO’s workforce would remain appropriately sized, shaped, and
                                          skilled to meet client demands and agency needs. Severe downsizing of the
                                          workforce, including a suspension of most hiring from 1992 through 1997,
                                          and constrained investments in such areas as training, performance
                                          incentives, rewards, and enabling technology left GAO with a range of
                                          human capital and operational challenges to address. Over 3 years ago,
                                          when GAO sought additional human capital flexibilities, our workforce was
                                          sparse at the entry level and plentiful at the midlevel. We were concerned
                                          about our ability to support the Congress with experienced and
                                          knowledgeable staff over time, given the significant percentage of the
                                          agency’s senior managers and analysts reaching retirement eligibility and
                                          the small number of entry-level employees who were training to replace
                                          more senior staff.

                                          As illustrated in figure 1, by the end of fiscal year 2002, GAO had almost a
                                          74 percent increase in the proportion of staff at the entry level (Band I)



                                          Page 14                                                           GAO-03-1024T
                       compared with fiscal year 1998. Also, the proportion of the agency’s
                       workforce at the midlevel (Band II) decreased by 16 percent.



                       Figure 1: GAO’s Human Capital Profile
                                                 FY 1998                          FY 2002

                       Mission        SES/SL         3.4                               3.5

                                      Band III    12.2                              12.0

                                      Band II     45.6                              38.1

                                      Band I      13.1                              22.8

                                      Othera         4.2                               4.1

                       Mission Supportb           21.5                              19.5

                       Figures in percentages
                       Source: GAO.




Voluntary Separation   In addition to authorizing voluntary early retirement for GAO employees,
Payments               Public Law 106-303 permits the Comptroller General to offer voluntary
                       separation incentive payments—buyouts—when necessary or appropriate
                       to realign the workforce to meet budgetary constraints or mission needs;
                       correct skill imbalances; or reduce high-grade, supervisory, or managerial
                       positions. Under the act, up to 5 percent of employees could be offered
                       such an incentive, subject to criteria established by the Comptroller
                       General.

                       The act requires GAO to deposit into the U.S. Treasury an amount
                       equivalent to 45 percent of the final annual basic salary of each employee to
                       whom a buyout is paid. The deposit is in addition to the actual buyout
                       amount, which can be up to $25,000 for an approved individual. Given the
                       many demands on agency resources, these costs present a strong financial
                       disincentive to use the provision if at all. GAO anticipates little, if any, use
                       of this authority because of the associated costs. For this reason, as well as
                       to avoid creating unrealistic employee expectations, GAO has not
                       developed and issued agency regulations to implement this section of the
                       act. Nevertheless, as stated earlier, it is prudent for us to seek the
                       continuation of this provision because it maximizes the options available to
                       the agency to deal with future circumstances. Since GAO is also eligible to
                       request buyouts under the provisions of the Homeland Security Act, the



                       Page 15                                                               GAO-03-1024T
                     agency will consider its options under this provision as well. However,
                     under the Homeland Security Act, GAO would have to seek OPM approval
                     of any buyouts, which raises serious independence concerns.



Annual Pay Setting   Section 3 and 4 of our proposal would provide GAO greater discretion in
                     determining the annual across the board and locality pay increases for our
Policy and           employees. Under our proposal, GAO would have the discretion to set
Adjustments          annual pay increases by taking into account alternative methodologies
                     from those used by the executive branch and various other factors, such as
                     extraordinary economic conditions or serious budgetary constraints.
                     While the authority requested may initially appear to be broad based, there
                     are compelling reasons why GAO ought to be given such authority. First, as
                     I discussed at the beginning of my testimony, GAO is an agency within the
                     legislative branch and already has a hybrid pay system established under
                     the authority the Congress granted over two decades ago. Therefore, our
                     proposal represents a natural evolution in GAO’s pay for performance
                     system. Second, GAO’s proposal is not radical if viewed from the vantage
                     point of the broad-based authority that has been granted the Department of
                     Homeland Security (DHS) under the Homeland Security Act of 2002;
                     agencies that the Congress has already granted the authority to develop
                     their own pay systems; the authorities granted to various demonstration
                     projects over the past two decades; and the authority Congress is currently
                     contemplating providing the Department of Defense (DOD). Third, GAO
                     already has a number of key safeguards and has plans to build additional
                     safeguards into our modified pay system if granted this authority.

                     Our proposal seeks to take a constructive step in addressing what has been
                     widely recognized as fundamental flaws in the federal government’s
                     approach to white-collar pay. These flaws and the need for reform have
                     been addressed in more detail in OPM’s April 2002 White Paper, A Fresh
                     Start For Federal Pay: A Case for Modernization, and more recently the
                     National Commission on the Public Service’s January 2003 report on
                     revitalizing the public service. The current federal pay and classification
                     system was established over 60 years ago for a federal workforce that was
                     made up largely of clerks performing routine tasks which were relatively
                     simple to assess and measure. Today’s federal workforce is composed of
                     much higher graded and knowledge-based workers.

                     Although there have been attempts over the years to refine the system by
                     enacting such legislation as the Federal Employees Pay Comparability Act
                     (FEPCA) which sought to address, among other things, the issue of pay



                     Page 16                                                        GAO-03-1024T
comparability with the nonfederal sector, the system still contains certain
fundamental flaws. The current system emphasizes placing employees in a
relative hierarchy of positions based on grade; is a “one size fits all
approach” since it does not recognize changes in local market rates for
different occupations; and is performance insensitive in that all employees
are eligible for the automatic across the board pay increases regardless of
their performance. Specifically, the annual across the board base pay
increase, also commonly referred to as the cost of living adjustment
(COLA) or the January Pay Increase which the President recommends and
the Congress approves, provides a time driven annual raise keyed to the
Employment Cost Index (ECI) to all employees regardless of performance.
In certain geographic areas, employees receive a locality adjustment tied to
the local labor markets. However, in calculating the locality adjustment,
for example, it is my understanding that FEPCA requires the calculation of
a single average, based on the dominant federal employer in an area, which
does not sufficiently recognize the differences in pay rates for different
occupations and skills. In view of the fact that today we are in a knowledge-
based economy competing for the best knowledge workers in the job
market, I believe that new approaches and methodologies are warranted.
This is especially appropriate for GAO’s highly educated and skilled
workforce.

Our proposed pay adjustment provision along with the other provisions of
GAO’s human capital proposal are collectively designed to help GAO
maintain a competitive advantage in attracting, motivating, retaining, and
rewarding a high performing and top-quality workforce both currently and
in future years. First, under our proposal, GAO would no longer be
required to provide automatic pay increases to employees who are rated as
performing at a below satisfactory level. Second, when the proposal is fully
implemented, GAO would be able to allocate more of the funding—
currently allocated for automatic across-the-board pay adjustments to all
employees—to permanent base pay adjustments that would vary based on
performance. In addition, our proposal would affect all GAO, non-wage
grade employees, including the SES and Senior Level staff.

Ultimately, if GAO is granted this authority, all GAO employees who
perform at a satisfactory level will receive an annual base pay adjustment
composed of purchase power protection and locality based pay increases
absent extraordinary economic circumstances or severe budgetary
constraints. GAO will be able to develop and apply its own methodology
for annual cost-of-living and locality pay adjustments. The locality pay
increase would be based on compensation surveys conducted by GAO and



Page 17                                                         GAO-03-1024T
                            which would be tailored to the nature, skills, and composition of GAO’s
                            workforce. The performance part of an employee’s annual raise would
                            depend on the level of the employee’s performance and that employee’s pay
                            band. We estimate that at least 95 percent of the workforce will qualify for
                            an additional performance-based increase. However, under this provision,
                            employees who perform below a satisfactory level will not receive an
                            annual increase of either type.



How GAO Plans to Use This   GAO’s major non-SES pay groups include (1) Analysts and Attorneys which
Authority                   comprises the majority of our workforce and is our mission group, (2) the
                            Professional Development Program staff (PDP) which is our entry level
                            mission group, (3) the Administrative Professional Support Staff (APSS),
                            which is our mission support group for the most part, and (4) Wage Grade
                            employees who primarily operate our print plant. Each of these groups
                            currently operate in a different pay system. Generally, our mission staff are
                            all in pay bands whereby they currently receive the annual across-the-
                            board base pay increase and locality pay increase similar to the GS pay
                            system, along with performance-based annual increases that are based on
                            merit. Generally, our mission support staff, with some exceptions, remain
                            in a system similar to the GS pay system with its annual across- the-board
                            pay increases, locality pay, quality step increases, and within grade
                            increases. We are currently in the process of migrating the mission support
                            staff into pay bands and a pay for performance system. Our Wage Grade
                            staff will continue to be covered by the federal compensation system for
                            trade, craft, and laboring employees. Because of the small number of
                            employees and the nature of their work, we have no plans to apply the pay
                            adjustment provision authority to this group.

                            I would like to point out the tables in appendices I through IV, which
                            succinctly describe how GAO plans to operationalize our authority under
                            our proposed annual pay adjustment provision over time.



GAO’s Proposed Pay          GAO’s proposal for additional pay flexibility is reasonable in view of the
Authority Is Reasonable     authority the Congress has already granted DHS through the Homeland
                            Security Act of 2002; the other agencies for whom the Congress has granted
                            the authority to develop their own pay systems; the demonstration projects
                            that OPM has authorized; and the authorities that other agencies in the
                            executive branch are currently seeking (e.g., DOD).




                            Page 18                                                          GAO-03-1024T
While we are aware that the passage of the Homeland Security Act of 2002
was not without its difficult moments, particularly with respect to the
broad-based authorities granted the department, we are also aware that the
process employed by DOD and certain of its human capital proposals are
highly controversial. It is important to point out that GAO’s proposal and
proposed pay flexibilities pale in respect to those granted to the DHS and to
those requested by the DOD in the Defense Transformation for the 21st
Century Act of 2003. Collectively, these two agencies represent almost 45
percent of the non-postal federal civilian workforce. Specifically, in
November 2002, the Congress passed the Homeland Security Act of 2002,
which created DHS and provided the department with significant
flexibilities to design a modern human capital management system, which
could have the potential, if properly developed, for application
governmentwide. DOD’s proposed National Security Personnel System
(NSPS) would provide wide-ranging changes to its civilian personnel pay
and performance management systems, collective bargaining, rightsizing,
and a variety of other human capital areas. NSPS would enable DOD to
develop and implement a consistent, DOD-wide civilian personnel system.

In addition to DHS, there are a number of federal agencies with authority
for their own pay systems. Some of these agencies are, for example, the
Congressional Budget Office, which is one of our sister agencies in the
legislative branch; the Federal Aviation Administration (FAA); the
Securities and Exchange Commission (SEC) ; and the Office of the
Comptroller of the Currency (OCC) within the Department of the Treasury.
When the Congress created the CBO in 1974, it granted that legislative
branch agency significant flexibilities in the human capital area. For
example, CBO has “at will” employment. In addition, CBO is not subject to
the annual executive branch pay adjustments. Further, CBO has extensive
flexibility regarding its pay system subject only to certain statutory annual
compensation limits.

Furthermore, there are twelve executive branch demonstration projects
involving pay for performance. These projects have taken different
approaches to the sources of funding for salary increases that are tied to
performance and not provided as entitlements. Many of the demonstration
projects reduce or deny the annual across the board base pay increase for
employees with unacceptable ratings (e.g., the Department of Navy’s China
Lake demonstration, DOD’s Civil Acquisition Workforce demonstration, the
Department of Air Force’s Research Laboratory demonstration, and the
Department of Navy’s Research Laboratory demonstration, among others.)
Others, including the National Institute of Standards and Technology and



Page 19                                                          GAO-03-1024T
                      the Department of Commerce demonstration projects, deny both the
                      annual across the board base pay increase and the locality pay adjustment
                      for employees with unacceptable ratings.

                      Currently, this Congress is considering a NASA human capital proposal.
                      This proposal would provide NASA with further flexibilities and authorities
                      for attracting, retaining, developing, and reshaping a skilled workforce.
                      These include a scholarship-for-service program; a streamlined hiring
                      authority for certain scientific positions; larger and more flexible
                      recruitment, relocation, and retention bonuses; noncompetitive
                      conversions of term employees to permanent status; a more flexible critical
                      pay authority; a more flexible limited-term appointment authority for the
                      SES; and greater flexibility in determining annual leave accrual rate for
                      new hires.



Safeguards Provided   As we have testified, agencies should have modern, effective, credible, and
                      as appropriate, validated performance management systems in place with
                      adequate safeguards, including reasonable transparency and appropriate
                      accountability mechanisms, to ensure fairness and prevent politicization
                      and abuse. While GAO’s transformation is a work in progress, we believe
                      that we are in the lead compared to executive branch agencies in having
                      the human capital infrastructure in place to provide such safeguards and
                      implement a modified pay system that is more performance oriented.
                      Specifically, for our Analyst pay group, we have gone through the first cycle
                      of a validated performance management system that has adequate
                      safeguards, including reasonable transparency and appropriate
                      accountability mechanisms. We have learned from what has worked and
                      what improvements can and should be made with respect to the first cycle.
                      In fact, we have adopted many of the recommendations and suggestions of
                      our managing directors and EAC and are now in the process of
                      implementing these suggestions.

                      The following is an initial list of possible safeguards, developed at the
                      request of Congressman Danny Davis, for Congress to consider to help
                      ensure that any pay for performance systems in the government are fair,
                      effective, and credible. GAO’s current human capital infrastructure has
                      most of these safeguards built in, and the others are in the process of being
                      incorporated.

                      • Assure that the agency’s performance management systems (1) link to
                        the agency’s strategic plan, related goals, and desired outcomes and



                      Page 20                                                          GAO-03-1024T
                       (2) result in meaningful distinctions in individual employee
                       performance. This should include consideration of critical
                       competencies and achievement of concrete results.

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

                    • Ensure that certain predecisional internal safeguards exist to help
                      achieve the consistency, equity, nondiscrimination, and
                      nonpoliticization of the performance management process (e.g.,
                      independent reasonableness reviews by the human capital offices
                      and/or the offices of opportunity and inclusiveness or its equivalent in
                      establishing and implementing a performance appraisal system, as well
                      as reviews of performance rating decisions, pay determinations, and
                      promotion actions before they are finalized to ensure that they are
                      merit-based; internal grievance processes to address employee
                      complaints; and pay panels predominately made up of career officials
                      who would consider the results of the performance appraisal process
                      and other information in making final pay decisions).

                    • Assure reasonable transparency and appropriate accountability
                      mechanisms in connection with the results of the performance
                      management process (e.g., publish overall results of performance
                      management and pay decisions while protecting individual
                      confidentiality, and report periodically on internal assessments and
                      employee survey results).



Transition Period   We have provided a statutory period minimum to allow for a smooth
                    implementation of the law as it applies to both our mission and mission
                    support staff. Specifically, for our Analyst and Attorney communities, we
                    plan to allow for at least a two-year period, during which they will continue
                    to receive their annual across the board pay raise and their locality pay, if
                    applicable, based on the amount set by the GS system. Once the proposal
                    is fully implemented, the new across-the-board increase, which provides
                    for inflation protection and locality pay where applicable, would be
                    computed based on GAO compensation studies, and the performance-
                    based merit pay would be provided based on an employee’s performance.

                    For our APSS employees, the transition period of at least 2 years would
                    allow for a smooth migration to the pay bands and the implementation of at



                    Page 21                                                           GAO-03-1024T
                             least one performance cycle of a newly validated competency based
                             performance appraisal system for that component of GAO’s workforce.
                             Our APSS employees are currently still in the GS system, but we are in the
                             process of moving them into pay bands. We will allow time for the group
                             to migrate to broad bands and to have at least one performance cycle under
                             pay bands before moving it into the new pay system. Therefore, as with the
                             analysts and attorneys, the administrative support staff will move into a
                             hybrid pay system once they migrate to pay bands. Also, as with the
                             analysts and attorneys, I have committed to providing them “pay
                             protection.” This guarantee would continue even after GAO’s authority to
                             adjust pay is fully implemented.

                             We have a small Wage Grade community of under 20 employees. As
                             mentioned earlier, we do not contemplate having the pay adjustment
                             provision apply to them.



“Pay Protection” Guarantee   My predecessor, Comptroller General Charles A. Bowsher, provided the
                             analysts and attorneys a “pay protection” guarantee at the time of their
                             conversion to broad bands. This guarantee, later spelled out in a GAO
                             order, provided that the analyst and attorneys rated as meeting
                             expectations in all categories would fare at least as well under pay bands as
                             under the GS system. This guarantee would not apply to employees who
                             are promoted after conversion or demoted, and to new employees hired
                             after the conversion. It is my understanding that this guarantee provided
                             by my predecessor is unique to GAO and has generally not been applied by
                             other agencies that have migrated their employees to pay bands.

                             Currently, 535 GAO employees are still covered by this “pay protection”
                             guarantee, while less than 10 employees annually have their pay readjusted
                             after the merit pay process. I have committed to GAO employees that even
                             if we receive the new pay adjustment authority, I would still honor my
                             predecessor’s pay protection guarantee. In addition, our mission support
                             staff will also receive this guarantee upon conversion to pay bands. This
                             guarantee will continue through the implementation period for our new
                             human capital authority.



Pay Retention                Section 5 of our proposal would allow GAO not to provide any automatic
                             increase in basic pay to an employee demoted as a result of workforce
                             restructuring or reclassification at his or her current rate until his or her



                             Page 22                                                           GAO-03-1024T
                        salary is less than the maximum rate of the new position. Under current
                        law, the grade and pay retention provisions allow employees to continue to
                        be paid at a rate that exceeds the value of the duties they are performing for
                        an extended period. Specifically, employees who are demoted (e.g., incur a
                        loss of grade or band) due to, among other things, reduction-in-force
                        procedures or reclassification receive full statutory pay increases for 2
                        years and then receive 50 percent of the statutory pay increases until the
                        pay of their new positions falls within the range of pay for those positions.
                        We believe that this antiquated system is inconsistent with the merit
                        principle that there should be equal pay for work of equal value.

                        In granting GAO this authority, we would be able to immediately place
                        employees in the band or grade commensurate with their roles and
                        responsibilities. It is important to note that we have a key safeguard—
                        employees whose basic pay exceeds the maximum rate of the grade or
                        band in which the employee is placed will not have their basic pay reduced.
                        These employees, who would still be eligible to increase their overall pay
                        through certain types of performance-based awards (e.g., incentive
                        awards), would retain this rate until their basic pay is less than the
                        maximum for their grade or band. As with all the provisions in our
                        proposal, we will not implement this pay retention provision until we have
                        consulted with the EAC and managing directors and have provided all GAO
                        employees an opportunity for notice and comment on any regulations.



Relocation Expenses     Section 6 would provide GAO the authority, in appropriate circumstances,
                        to reimburse employees for some relocation expenses when transfers do
                        not meet current legal requirements for entitlement to reimbursement but
                        still benefit GAO. Under current law, employees who qualify for relocation
                        benefits are entitled to full benefits; however, employees whose transfer
                        may be of some benefit or value to the agency would not be eligible to
                        receive any reimbursement. This provision would provide these employees
                        some relief from the high cost of relocating while at the same time allowing
                        GAO the flexibility to promulgate regulations in order to provide such
                        relief. This authority has been previously granted to other agencies,
                        including the FAA.



Leave for Upper Level   Section 7 of the proposal provides GAO the authority to provide 160 hours
                        (20 days) of annual leave to appropriate employees in high-grade,
Hires                   managerial or supervisory positions who have less than 3 years of federal



                        Page 23                                                           GAO-03-1024T
                     service. This is narrowly tailored authority that would apply only to GAO
                     and not to executive branch agencies. While it is been a long-standing tenet
                     that all federal employees earn annual leave based on years of federal
                     service, we believe that there is substantial merit in revisiting this in view
                     of today’s human capital environment and challenges. We have found that,
                     in recruiting experienced mid- and upper-level hires, the loss of leave they
                     would incur upon moving from the private to the federal sector is a major
                     disincentive. For example, an individual, regardless of the level at which
                     he enters first enters the federal workforce, is eligible to earn 4 hours of
                     annual leave for each pay period and, therefore, could accrue a total of 104
                     hours (13 days) annually so long as they do not use any of that leave during
                     the year. This amount increases to 6 hours of annual leave after 3 years of
                     federal service. By increasing the annual leave that certain newly hired
                     officers and employees may earn, this provision is designed to help attract
                     and retain highly skilled employees needed to best serve the Congress and
                     the country.



Executive Exchange   Section 8 would authorize GAO to establish an executive exchange
                     program between GAO and private sector entities. Currently, GAO has the
Program              authority to conduct such an exchange with public entities and non profit
                     organizations under the Intergovernmental Personnel Act; there is no such
                     authority for private sector exchanges. Under this program, high-grade,
                     managerial or supervisory employees from GAO may work in the private
                     sector, and private sector employees may work at GAO. While GAO will
                     establish the details of this program in duly promulgated regulations, we
                     have generally fashioned, with exceptions where appropriate, the legal
                     framework for this program on the Information Technology Exchange
                     Program authorized by Public Law 107-347, the E-Government Act of 2002,
                     which the Congress enacted to address human capital challenges within
                     the executive branch in the information technology area.

                     While the Information Technology Exchange Program only involves
                     technology exchanges, GAO’s exchange program will cover not only those
                     who work in information technology fields, but also accountants,
                     economists, lawyers, actuaries, and other highly skilled professionals. This
                     program will help us address certain skills imbalances in such areas as well
                     as a range of succession planning challenges. Specifically, by fiscal year
                     2007, 52 percent of our senior executives, 37 percent of our management-
                     level analysts, and 29 percent of our analysts and related staff will be
                     eligible for retirement. Moreover, at a time when a significant percentage
                     of our workforce is nearing retirement age, marketplace, demographic,



                     Page 24                                                           GAO-03-1024T
                         economic, and technological changes indicate that competition for skilled
                         employees will be greater in the future, making the challenge of attracting
                         and retaining talent even more complex.

                         One of the key concerns raised in the past regarding private sector
                         exchange programs has been the issue of conflict of interest. We believe
                         that in this regard GAO differs from executive branch agencies in that, as
                         reviewers, we are not as subject to potential conflicts of interest.
                         Nevertheless, it is important to note in requesting this authority that we
                         have made clear that the private sector participants would be subject to the
                         same laws and regulations regarding conflict of interest, financial
                         disclosure, and standards of conduct applicable to all employees of GAO.
                         Under the program, private sector participants would receive their salaries
                         and benefits from their employers and GAO need not contribute to these
                         costs. We also believe that this will also encourage private sector
                         individuals to devote a portion of their careers to the public sector without
                         incurring substantial financial sacrifice.



Changing GAO’s Name      Section 9 would change the name of our agency from the “General
                         Accounting Office” to the “Government Accountability Office.” At the
to the “Government       same time, the well-known acronym “GAO,” which has over 80 years of
Accountability Office”   history behind it, will be maintained. We believe that the new name will
                         better reflect the current mission of GAO as incorporated into its strategic
                         plan, which was developed in consultation with the Congress. As stated in
                         GAO’s strategic plan, our activities are designed to ensure the executive
                         branch’s accountability to the American people. Indeed, the word
                         accountability is one of GAO’s core values along with integrity and
                         reliability. These core values are also incorporated in GAO’s strategic plan
                         for serving the Congress.

                         The GAO of today is a far cry from the GAO of 1921, the year that the
                         Congress established it through the enactment of the Budget and
                         Accounting Act. In 1921, GAO pre-audited agency vouchers for the legality,
                         propriety, and accuracy of expenditures. In the 1950s, GAO’s statutory
                         work shifted to the comprehensive auditing of government agencies. Later,
                         beginning during the tenure of Comptroller General Elmer B. Staats, GAO’s
                         work expanded to include program evaluation and policy analysis.
                         Whereas GAO’s workforce consisted primarily of accounting clerks during
                         the first three decades of its existence, today it is a multidisciplinary
                         professional services organization with staff reflecting the diversity of




                         Page 25                                                          GAO-03-1024T
               knowledge and skills needed to deliver a wide range of services to the
               Congress.

               Although currently less than 15 percent of agency resources are devoted to
               traditional auditing and accounting activities, members of the public, the
               press, as well as the Congress often incorrectly assume that GAO is still
               solely a financial auditing organization. In addition, our name clearly
               confuses many potential applicants, who assume that GAO is only
               interested in hiring accountants. We believe that the new name will help
               attract applicants and address certain “expectation gaps” that exist outside
               of GAO.



Concluding     In conclusion, I believe that GAO’s human capital proposal merits prompt
               passage by this committee and, ultimately, the Congress. We have used the
Observations   narrowly tailored flexibilities the Congress provided us previously in Public
               Law 106-303 responsibly, prudently, and strategically to help posture GAO
               to ensure the accountability of the federal government for the benefit of the
               Congress and the American people. Although some elements of our initial
               straw proposal were controversial, we have made a number of changes,
               clarifications, and commitments to address various comments and
               concerns raised by GAO employees. We recognize that the pay adjustment
               provision of this proposal remains of concern to some of our staff.
               However, we believe that it is vitally important to GAO’s future that we
               continue modernizing and updating our human capital policies and system
               in light of the changing environment and anticipated challenges ahead. We
               believe that the proposal as presented and envisioned is well reasoned and
               reasonable with adequate safeguards for GAO employees. Given our
               human capital infrastructure and our unique role in leading by example in
               major management areas, including human capital management, the
               federal government could benefit from GAO’s experience with pay for
               performance systems. Overall, we believe that this proposal represents a
               logical incremental advancement in modernizing GAO’s human capital
               policies, and with your support, we believe that it will make a big difference
               for the GAO of the future.

               Chairwoman Jo Ann Davis, Mr. Davis, and Members of the Committee, this
               concludes my prepared statement. I would be pleased to respond to any
               questions you may have.




               Page 26                                                           GAO-03-1024T
Contacts   For further information regarding this testimony, please contact Sallyanne
           Harper, Chief Mission Support Officer, on (202) 512-5800 or at
           harpers@gao.gov or Jesse Hoskins, Chief Human Capital Officer, on (202)
           512-5553 or at hoskinsj@gao.gov.




           Page 27                                                        GAO-03-1024T
Appendix I

Analysts and Attorneys: Pay Increases under
GAO’s Current System and Human Capital
Proposal                                                                                                                                               Append
                                                                                                                                                            x
                                                                                                                                                            Ii




         Types of Pay             Current Pay Systemb                          Transition Periodc                       Implementation Periodd
          Increasesa                 (Broad band)                           (Guaranteed Minimum;                      (Pay Protection from Band
                                                                     Pay Protection from Band Conversion)                    Conversion)

                                Included            Permanent                    Included         Permanent             Included           Permanent
                                                    base pay                                      base pay                                 base pay
    Annual across-the-board
           base pay                                                     (Same percentage as                            (Percentage
                                                                        executive branch GS;                         decoupled from
                                                                          for all satisfactory                    executive branch GS;
                                                                              performers)                           for all satisfactory
                                                                                                                       performers)

           Locality pay
                                                                                                                       (Percentage
                                                                        (Same percentage as
                                                                                                                     decoupled from
                                                                        executive branch GS;
                                                                                                                  executive branch GS;
                                                                          for all satisfactory
                                                                                                                    for all satisfactory
                                                                              performers)
                                                                                                                       performers)


   Performance-based pay
      (Merit increases)                                               (Percentages determined                         (Percentages
                               (Percentages                             by EC annually; initial                    determined by EC
                               determined by                           additional performance-                      annually; actual
                                EC annually)                           based funds limited due                    incremental amount
                                                                         to transition period                      will vary over time)
                                                                              guarantee)

    Performance bonusesb-d
    (for individuals who are                                                                       One-time                                 One-time
           pay capped)                              One-time


         Dividendsb-d                               One-time                                       One-time                                 One-time


      Incentive awards                              One-time                                       One-time                                 One-time


                                                    This element is applicable
                                               N/A This element is not applicable
Source: GAO.

                                                a
                                                 The percentage allocated to each type of pay increase varies annually.
                                                b
                                                 Under our current pay system, GAO is linked to the executive branch for annual base and locality pay
                                                adjustments; however, since the implementation of broad banding, has not been linked to the executive
                                                branch for performance-based merit pay increases, performance bonuses/dividends, and other
                                                incentive award pay increases. The Executive Committee determines on an annual basis which pay
                                                categories, if any, are eligible for bonuses and dividends. For example, individuals in pay categories
                                                one and two received dividends for their FY 02 performance.
                                                c
                                                  During the transition period, GAO staff rated as performing at a satisfactory level (i.e., meeting
                                                expectations or higher) will be guaranteed, at a minimum, barring extraordinary economic




                                                Page 28                                                                                    GAO-03-1024T
Appendix I
Analysts and Attorneys: Pay Increases under
GAO’s Current System and Human Capital
Proposal




circumstances or serious budgetary constraints, base pay and locality pay according to the same
adjustment provided to executive branch employees. All such GAO staff will also be eligible for
additional performance-based merit pay increases, performance bonuses (if pay capped)/dividends,
and incentive awards. During the transition period, GAO will continue to raise the pay cap for its pay
bands commensurate with executive branch pay cap increases absent extraordinary economic
circumstances or serious budgetary constraints. The Executive Committee will determine on an
annual basis which categories, if any, are eligible for bonuses and dividends.
d
 Under its human capital proposal, GAO proposes to decouple itself from the executive branch for base
and locality pay adjustments after a 2 plus year transition period. After the transition period, GAO will
fully implement a modified pay system in which absent extraordinary economic conditions or serious
budgetary constraints, all GAO staff rated as performing at a satisfactory level (i.e., meeting
expectations or higher) can expect to receive at a minimum an annual adjustment designed to protect
purchasing power (e.g., the Consumer Price Index) and address differences in compensation ranges
by localities. In addition, all such staff will continue to be eligible for performance-based merit pay
increases, performance bonuses (if pay capped)/dividends, and incentive awards. Before finalizing
and implementing a modified pay system, GAO will seek the advice of the managing directors and
GAO’s Employee Advisory Council. We will also draft revised pay regulations and publish them for
review and comment by all employees.




Page 29                                                                                 GAO-03-1024T
Appendix II

Professional Development Program (PDP)                                                                                                                  Appendx
                                                                                                                                                              ies




Staff: Pay Increases under GAO’s Current
System and Human Capital Proposal                                                                                                                        Appendx
                                                                                                                                                               Ii




                                      Current Pay Systemb                         Transition Periodc                      Implementation
           Types of Pay
                                       (Broad band/PDP)                          Guaranteed Minimum                          Periodd
            Increasesa
                                                      Permanent                                   Permanent                           Permanent
                                     Included                                   Included                           Included
                                                       base pay                                   base pay                            base pay


     Annual across-the-board                                                                                       (Percentage
            base pay                                                      (Same percentage                          decoupled
                                                                              as executive                       from executive
                                                                               branch GS;                           branch GS;
                                                                           for all satisfactory                for all satisfactory
                                                                               performers)                         performers)

               Locality pay                                               (Same percentage                         (Percentage
                                                                              as executive                          decoupled
                                                                               branch GS;                        from executive
                                                                           for all satisfactory                     branch GS;
                                                                               performers)                     for all satisfactory
                                                                                                                   performers)



      Performance-based pay      (Percentages                                 (Percentages                      (Percentages
                                 determined by                                determined by                     determined by
                                  EC annually)                                 EC annually)                      EC annually)


      Performance bonusesb-e
      (for individuals who are                          One-time                                  One-time                            One-time
             pay capped)
               Dividendsc-e          N/A                    N/A                   N/A               N/A              N/A                 N/A

         Incentive awards                                One-time                                 One-time                             One-time

                                                 This element is applicable
                                           N/A This element is not applicable
Source: GAO.

                                                 Note: PDP Staff who are Band IF (full performance) are covered by the merit pay system. See chart for
                                                 Analysts & Attorneys.
                                                 a
                                                 The percentage allocated to each type of pay increase varies annually.
                                                 b
                                                  Under our current pay system, GAO is linked to the executive branch for base and locality pay. Band I
                                                 staff in the PDP are eligible for periodic performance based PDP pay increases that are not available in
                                                 the executive branch. PDP staff are not eligible for performance based merit increases and dividends.
                                                 c
                                                   During the transition period, PDP staff rated as performing at a satisfactory level (i.e., meeting
                                                 expectations or higher) will be guaranteed, at a minimum, barring extraordinary economic
                                                 circumstances or serious budgetary constraints, base pay and locality pay according to the same
                                                 adjustment provided to the executive branch employees. PDP staff rated as performing at the
                                                 satisfactory level (i.e., meeting expectations or higher) will be eligible for performance-based PDP pay
                                                 increases. During and after the transition period, PDP staff will not be eligible for dividends because
                                                 PDP staff are evaluated every 6 months for performance based PDP increases. During the transition
                                                 period, GAO will raise the pay cap for its Band I pay band commensurate with executive branch pay
                                                 cap increases absent extraordinary economic circumstances or serious budgetary constraints. The




                                                 Page 30                                                                                 GAO-03-1024T
Appendix II
Professional Development Program (PDP)
Staff: Pay Increases under GAO’s Current
System and Human Capital Proposal




Executive Committee will determine on an annual basis which pay categories, if any, are eligible for
PDP bonuses.
d
 Under its human capital proposal, GAO proposes to decouple itself from the executive branch for base
and locality pay after a 2 plus year transition period. After the transition period, GAO will fully
implement a modified pay system in which absent extraordinary economic conditions or serious
budgetary constraints, all PDP staff rated as performing at a satisfactory level (i.e., meeting
expectations or higher) can expect to receive at a minimum, an annual adjustment designed to protect
purchasing power (e.g., the Consumer Price Index) and address differences in compensation ranges
by localities. In addition, PDP staff rated as performing at a satisfactory level (i.e., meeting
expectations or higher) will continue to be eligible for additional performance-based compensation,
including performance-based PDP pay increases and incentive awards. Before finalizing and
implementing a modified pay system, GAO will seek the advice of the managing directors and GAO’s
Employee Advisory Council. We will also draft revised pay regulations and publish them for review and
comment by all employees.




Page 31                                                                               GAO-03-1024T
Appendix III

Administrative Professional Support Staff
(APSS): Pay Increases under GAO’s Current
System and Human Capital Proposal                                                                                                                  Appendx
                                                                                                                                                         iI




       Types of Pay                                                 Transition Periodc                    Implementation Periodd
        Increasesa            Current Pay Systemb                     (Broad band)                 Pay Protection from Band Conversion
                                      (GS)                      Pay Protection from Band
                                                                       Conversion
                             Included      Permanent            Included         Permanent                  Included               Permanent
                                            base pay                             base pay                                          base pay

  Annual across-the-board
         base pay                                           (Same percentage                     Percentage decoupled from
                                                               as executive                          executive branch GS;
                                                                branch GS)                      for all satisfactory performers)
          Locality pay
                                                            (Same percentage                     Percentage decoupled from
                                                               as executive                          executive branch GS;
                                                                branch GS)                      for all satisfactory performers)
   Quality step increase
           (QSI)                                                     N/A           N/A                        N/A                      N/A

  Within grade increase
          (WIG)                                                      N/A           N/A                        N/A                      N/A

                               N/A              N/A
  Performance-based pay
      (merit increases)                                       (Percentages                      (Percentages determined by
                                                              determined by                    EC annually; actual incremental
                                                               EC annually)                      amount will vary over time)

  Performance bonusesb-d
  (for individuals who are     N/A              N/A                              One-time                                           One-time
         pay capped)

         Dividendsb-d          N/A              N/A                                N/A

     Incentive awards                      One-time                             One-time                                            One-time

                                                This element is applicable
                                           N/A This element is not applicable
Source: GAO.
                                            a
                                             The percentage allocated to each type of pay increase varies annually. This chart applies only to
                                            APSS employees who are under the General Schedule (GS) system. APSS employees who are
                                            already in broad bands should see the chart for Analysts and Attorneys.
                                            b
                                             Under our current pay system, GAO is linked to the executive branch for annual base, locality, QSI,
                                            and WIG pay adjustments. APSS staff are eligible for performance incentive award pay increases;
                                            however, they are not eligible for performance bonuses (if pay capped) or dividends.
                                            c
                                              During the transition period, GAO will implement broad banding for the APSS community between
                                            April – June 2004 and allow at least one full cycle of a new competency-based performance appraisal
                                            system before implementing any additional performance-based pay adjustments envisioned under HC
                                            II. Upon conversion to broad bands, GAO, as it did with its Analyst and Attorney communities, will
                                            replace QSIs and WIGs with performance pay increases that are not linked to the executive branch.
                                            Also, as it did with its Analyst and Attorney communities when they were converted to bands, GAO will
                                            provide a pay protection guarantee. Specifically, APSS staff who perform at the meets expectations
                                            level on any performance rating will earn a salary at least as high as they would have received had
                                            they remained under the General Schedule at their grade at the time of conversion. However, this




                                            Page 32                                                                                GAO-03-1024T
Appendix III
Administrative Professional Support Staff
(APSS): Pay Increases under GAO’s Current
System and Human Capital Proposal




guarantee will not apply to staff who are promoted after conversion or demoted and to new employees
hired after the conversion. APSS staff will be eligible for performance-based merit increases,
performance bonuses (if pay capped) /dividends, and incentive awards. During the transition period,
GAO will continue to raise the pay cap for its pay bands commensurate with executive branch pay cap
increases. The Executive Committee will determine on an annual basis which pay categories, if any,
are eligible for bonuses and dividends.
d
 Under its human capital proposal, GAO proposes to decouple itself from the executive branch for base
and locality pay after a two plus year transition for the broad band conversion. After the transition
period, GAO will fully implement a modified pay system in which absent extraordinary economic
conditions or serious budgetary constraints, all GAO staff rated as performing at a satisfactory level
(i.e., meeting expectations or higher) can expect to receive at a minimum, an annual adjustment
designed to protect purchasing power (e.g., the Consumer Price Index) and address differences in
compensation ranges by localities. In addition, all APSS staff will continue to be eligible for
performance-based merit pay increases, performance bonuses (if pay capped)/dividends, and
incentive awards. Before finalizing and implementing a modified pay system, GAO will seek the advice
of the managing directors and GAO’s Employee Advisory Council. We will also draft revised pay
regulations and publish them for review and comment by all employees. In addition, APSS staff
receiving the pay protection guarantee from their conversion into pay bands will continue to be eligible
for pay protection during the implementation period.




Page 33                                                                                 GAO-03-1024T
Appendix IV

Wage Grade (WG) Staff: Pay Increases under
GAO’s Current System and Human Capital
Proposal                                                                                                            Appendx
                                                                                                                          iIV




                                                                                  Current Pay Systemb
                                   Types of Pay   Increasesa                         (Wage Grade)
                                                                                System Same Under HC II
                                                                             Included              Permanent

                          Annual across-the-board base pay
                                        Locality pay                           N/A                     N/A
                                 Quality step increase (QSI)                   N/A                     N/A
                                 Within grade increase (WIG)


                                      Incentive awardsc                                             One-time

                   · This element is applicable
                  N/A This element is not applicable
                  Source: GAO.

              Note: HC II refers to GAO’s human capital proposal.
              a
                  The percentage allocated to each type of pay increase varies annually.
              b
               Under its current wage grade pay system, GAO is linked to the executive branch for base, locality, and
              WIG pay increases. Wage grade employees are not eligible for QSIs and locality pay increases in
              GAO or anywhere in the federal government. Because its wage grade community is so small, GAO
              does not plan to include the wage grade community in the modified pay system under its human
              capital proposal.
              c
               Wage grade staff are not eligible for bonuses and dividends.




(997900)      Page 34                                                                                GAO-03-1024T
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