oversight

Human Capital: Building on DOD's Reform Effort to Foster Governmentwide Improvements

Published by the Government Accountability Office on 2003-06-04.

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

                            United States General Accounting Office

GAO                         Testimony
                            Before the Committee on Governmental
                            Affairs, U.S. Senate


For Release on Delivery
Expected at 9:30 a.m. EDT
Wednesday, June 4, 2003     HUMAN CAPITAL
                            Building on DOD's Reform
                            Effort to Foster
                            Governmentwide
                            Improvements
                            Statement of David M. Walker
                            Comptroller General of the United States




GAO-03-851T
                                                June 4, 2003


                                                HUMAN CAPITAL

                                                Building on DOD’s Reform Effort to
Highlights of GAO-03-851T,                      Foster Governmentwide Improvements
testimony before the Committee on
Governmental Affairs, United States
Senate




People are at the heart of an                   GAO strongly supports the need for government transformation and the
organization’s ability to perform its           concept of modernizing federal human capital policies both within DOD
mission. Yet a key challenge for                and for the federal government at large. The federal personnel system is
the Department of Defense (DOD),
as for many federal agencies, is to
                                                clearly broken in critical respects—designed for a time and workforce of
strategically manage its human                  an earlier era and not able to meet the needs and challenges of today’s
capital. DOD’s proposed National                rapidly changing and knowledge-based environment. The human capital
Security Personnel System would                 authorities being considered for DOD have far-reaching implications for
provide for wide-ranging changes                the way DOD is managed as well as significant precedent-setting
in DOD’s civilian personnel pay and             implications for the rest of the federal government. GAO is pleased that
performance management and                      as the Congress has reviewed DOD’s legislative proposal it has added a
other human capital areas. Given
                                                number of important safeguards, including many along the lines GAO has
the massive size of DOD, the
proposal has important precedent-               been suggesting, that will help DOD maximize its chances of success in
setting implications for federal                addressing its human capital challenges and minimize the risk of failure.
human capital management.
                                                More generally, GAO believes that agency-specific human capital reforms
This testimony provides GAO’s                   should be enacted to the extent that the problems being addressed and
observations on DOD human                       the solutions offered are specific to a particular agency (e.g., military
capital reform proposals and the                personnel reforms for DOD). Several of the proposed DOD reforms meet
need for governmentwide reform.
                                                this test. In GAO’s view, the relevant sections of the House’s version of
                                                the National Defense Authorization Act for Fiscal Year 2004 and the
                                                proposal that is being considered as part of this hearing contain a
                                                number of important improvements over the initial DOD legislative
                                                proposal.

                                                Moving forward, GAO believes it would be preferable to employ a
                                                governmentwide approach to address human capital issues and the need
                                                for certain flexibilities that have broad-based application and serious
                                                potential implications for the civil service system, in general, and the
                                                Office of Personnel Management, in particular. GAO believes that
                                                several of the reforms that DOD is proposing fall into this category (e.g.,
                                                broad banding, pay for performance, re-employment and pension offset
                                                waivers). In these situations, GAO believes it would be both prudent and
                                                preferable for the Congress to provide such authorities governmentwide
                                                and ensure that appropriate performance management systems and
                                                safeguards are in place before the new authorities are implemented by
                                                the respective agency. Importantly, employing this approach is not
                                                intended to delay action on DOD’s or any other individual agency’s
                                                efforts, but rather to accelerate needed human capital reform throughout
                                                the federal government in a manner that ensures reasonable consistency
                                                on key principles within the overall civilian workforce. This approach
www.gao.gov/cgi-bin/getrpt?GAO-03-851T.         also would help to maintain a level playing field among federal agencies
To view the full testimony, click on the link
                                                in competing for talent and would help avoid further fragmentation
above. For more information, contact Derek      within the civil service.
Stewart at (202) 512-5559 or
stewartd@gao.gov.
Chairman Collins and Members of the Committee:

I am pleased to be here today to discuss legislative proposals to help the
Department of Defense (DOD) address its current and emerging human
capital challenges. Over the past few weeks, I have been honored to
appear as a witness before the Congress on three other occasions to
discuss this important issue and related DOD human capital concerns.1 As
the House of Representatives has reviewed DOD’s legislative proposal, it
has added a number of important safeguards, including many along the
lines we were suggesting, that will help DOD maximize its chances of
success in addressing its human capital challenges and minimize the risk
of failure. Furthermore, the proposed National Security Personnel System
Act that is the subject of this hearing also includes a significant number of
improvements over DOD’s initial proposal. I understand that there are
important issues that will need to be resolved in conference that obviously
have implications for DOD’s reform efforts, and may have major
implications for governmentwide reform efforts.

We strongly support the need for government transformation and the
concept of modernizing federal human capital policies both within DOD
and for the federal government at large. The federal personnel system is
clearly broken in critical respects—designed for a time and workforce of
an earlier era and not able to meet the needs and challenges of our rapidly
changing and knowledge-based environment. Nonetheless, I believe that
we have made more progress in addressing the government’s long-
standing human capital challenges in the last 2 years than in the previous
20, and I am confident that we will make more progress in the next 2 years
than we have made in the last 2 years.

The human capital authorities being considered for DOD have far-reaching
implications for the way DOD is managed as well as significant precedent-
setting implications for the rest of the federal government. DOD has
almost 700,000 civilian employees. The Department of Homeland Security,
which also has broad human capital flexibilities, has about 140,000 civilian



1
 U.S. General Accounting Office, Human Capital: DOD’s Civilian Personnel Strategic
Management and the Proposed National Security Personnel System, GAO-03-493T
(Washington, D.C.: May 12, 2003); Defense Transformation: DOD’s Proposed Civilian
Personnel System and Governmentwide Human Capital Reform, GAO-03-741T
(Washington, D.C.: May 1, 2003); and Defense Transformation: Preliminary Observations
on DOD’s Proposed Civilian Personnel Reforms, GAO-03-717T (Washington, D.C.: Apr. 29,
2003).



Page 1                                                                  GAO-03-851T
employees. Other federal agencies that have been granted broad
authorities, such as the Federal Aviation Administration and the Internal
Revenue Service, have many thousands more federal employees. In
essence, we are fast approaching the point where “standard
governmentwide” human capital policies and procedures are neither
standard nor governmentwide. In this environment, we should pursue
governmentwide reforms and flexibilities that can be used by many
government agencies, subject to agencies having appropriate
infrastructures in place before such authorities are put in operation.
Considering certain proposed DOD reforms in the context of the need for
governmentwide reform could serve to accelerate progress across the
government while at the same time incorporating appropriate safeguards
to maximize the ultimate chances of success and minimize the potential
for abuse and prevent the further fragmentation of the civil service.

More directly, agency-specific human capital reforms should be enacted to
the extent that the problems being addressed and the solutions offered are
specific to a particular agency (e.g., military personnel reforms for DOD).
Several of the proposed DOD reforms meet this test. Importantly, the
relevant sections of the House of Representatives’ version of the National
Defense Authorization Act for Fiscal Year 2004 and Chairman Collins,
Senator Levin, Senator Voinovich, and Senator Sununu’s National Security
Personnel System Act, in our view, contain a number of important
improvements over the initial DOD legislative proposal.

Moving forward, we believe it would be preferable to employ a
governmentwide approach to address human capital issues and the need
for certain flexibilities that have broad-based application and serious
potential implications for the civil service system, in general, and the
Office of Personnel Management (OPM), in particular. We believe that
several of the reforms that DOD is proposing fall into this category (e.g.,
broad banding, pay for performance, re-employment, and pension offset
waivers). In these situations, we believe it would be both prudent and
preferable for the Congress to provide such authorities governmentwide
and ensure that appropriate performance management systems and
safeguards are in place before the new authorities are implemented by the
respective agencies. This approach would help to maintain a level playing
field among federal agencies in competing for talent. Importantly,
employing this approach is not intended to delay action on DOD’s or any
other individual agency’s efforts.

However, in all cases whether through a governmentwide authority or
agency-specific legislation, in our view, such additional authorities should

Page 2                                                           GAO-03-851T
                  be put in operation only when an agency has the institutional
                  infrastructure in place to use the new authorities effectively. This
                  institutional infrastructure includes, at a minimum, a human capital
                  planning process that integrates the agency’s human capital policies,
                  strategies, and programs with its program goals and mission and desired
                  outcomes; the capabilities to develop and implement a new human capital
                  system effectively; and a modern, effective, and credible performance
                  management system that includes adequate safeguards, including
                  reasonable transparency and appropriate accountability mechanisms, to
                  ensure the fair, effective, and nondiscriminatory implementation of the
                  system.

                  My recent statements before the Congress have discussed DOD’s human
                  capital challenges and have provided comments and suggestions on the
                  initial DOD proposal to create a National Security Personnel System
                  (NSPS). Building on those statements, today I will comment on current
                  DOD human capital reform proposals, including the National Security
                  Personnel System Act, and how those proposals can be used to help
                  leverage governmentwide change.


                  As I observed when I first testified on the DOD proposal in April, many of
Observations on   the basic principles underlying DOD’s civilian human capital proposals
Proposed DOD      have merit and deserve the serious consideration they are receiving.
                  Secretary Rumsfeld and the rest of DOD’s leadership are clearly
Reforms           committed to transforming how DOD does business. Based on our
                  experience, while DOD’s leadership has the intent and the ability to
                  transform DOD, the needed institutional infrastructure is not in place
                  within a vast majority of DOD organizations. Our work looking at DOD’s
                  strategic human capital planning efforts and looking across the federal
                  government at the use of human capital flexibilities and related human
                  capital efforts underscores the critical steps that DOD needs to take to
                  properly develop and effectively implement any new personnel
                  authorities.2 In the absence of the right institutional infrastructure,



                  2
                    See, for example, U.S. General Accounting Office, Human Capital: Effective Use of
                  Flexibilities Can Assist Agencies in Managing Their Workforces, GAO-03-2 (Washington,
                  D.C.: Dec. 6, 2002); DOD Personnel: DOD Actions Needed to Strengthen Civilian Human
                  Capital Strategic Planning and Integration with Military Personnel and Sourcing
                  Decisions, GAO-03-475 (Washington, D.C.: Mar. 28, 2003); and Defense Logistics: Actions
                  Needed to Overcome Capability Gaps in the Public Depot System, GAO-02-105
                  (Washington, D.C.: Oct. 12, 2001).



                  Page 3                                                                    GAO-03-851T
                      granting additional human capital authorities will provide little advantage
                      and could actually end up doing damage if the authorities are not
                      implemented properly.

                      The following provides some observations on key provisions of the
                      proposed National Security Personnel System Act in relation to the House
                      version of the National Defense Authorization Act for Fiscal Year 2004.
                      First, I offer some comments on the overall design for a new personnel
                      system at DOD. Second, I provide comments on selected aspects of the
                      proposed system.


DOD’s Overall Human   The House version of DOD’s authorization bill would allow the Secretary
Capital Program       of Defense to develop regulations with the Director of OPM to establish a
                      human resources management system for DOD. The Secretary of Defense
                      could waive the requirement for the joint issuance of regulations if, in the
                      Secretary’s judgment and subject to the decision of the President, it is
                      “essential to the national security”—which was not defined in the
                      proposed bill. As an improvement, the proposed National Security
                      Personnel System Act also requires that the new personnel system be
                      jointly developed by the Secretary of Defense and the Director of OPM,
                      but does not allow the joint issuance requirement to be waived. This
                      approach is consistent with the one the Congress took in creating the
                      Department of Homeland Security.

                      The proposed National Security Personnel System Act requires the
                      Secretary of Defense to phase in the implementation of NSPS beginning in
                      fiscal year 2004. Specifically, the new personnel authorities could be
                      implemented for a maximum of 120,000 of DOD’s civilian employees in
                      fiscal year 2004, up to 240,000 employees in fiscal year 2005, and more
                      than 240,000 employees in a fiscal year after fiscal year 2005, if the
                      Secretary of Defense determines that, in accordance with the bill’s
                      requirement that the Secretary and the Director of OPM jointly develop
                      regulations for DOD’s new human resources management system, the
                      Department has in place a performance management system and pay
                      formula that meets criteria specified in the bill. We strongly support a
                      phased approach to implementing major management reforms, whether
                      with the human capital reforms at DOD or with change management
                      initiatives at other agencies or across the government. We suggest that
                      OPM, in fulfilling its role under this section of the bill, certify that DOD has
                      a modern, effective, credible, and, as appropriate, validated performance
                      management system with adequate safeguards, including reasonable



                      Page 4                                                             GAO-03-851T
                              transparency and appropriate accountability mechanisms, in place to
                              support performance-based pay and related personnel decisions.

Employee Appeals Procedures   The proposed National Security Personnel System Act states that the
                              Secretary of Defense may establish an employee appeals process that is
                              fair and ensures due process protections for employees. The Secretary of
                              Defense is required to consult with the Merit Systems Protection Board
                              (MSPB) before issuing any regulations in this area. The DOD appeals
                              process must be based on legal standards consistent with merit system
                              principles and may override legal standards and precedents previously
                              applied by MSPB and the courts in cases related to employee conduct and
                              performance that fails to meet expectations. The bill would allow appeal
                              of any decision adversely affecting an employee and raising a substantial
                              question of law or fact under this process to the Merit Systems Protection
                              Board under specific standards of review, and the Board’s decision could
                              be subject to judicial review, as is the case with other MSPB decisions.
                              This proposal affords the employee review by an independent body and
                              the opportunity for judicial review along the lines that we have been
                              suggesting.

DOD Human Capital Reform      The proposed National Security Personnel System Act does not include an
Evaluation and Reporting      evaluation or reporting requirement from DOD on the implementation of
                              its human capital reforms, although DOD has stated that it will continue its
                              evaluation of the science and technology reinvention laboratory
                              demonstration projects when they are integrated under a single human
                              capital framework. We believe an evaluation and reporting requirement
                              would facilitate congressional oversight of NSPS, allow for any midcourse
                              corrections in its implementation, and serve as a tool for documenting best
                              practices and sharing lessons learned with employees, stakeholders, other
                              federal agencies, and the public. Specifically, the Congress should
                              consider requiring that DOD fully track and periodically report on the
                              implementation and results of its new human capital program. Such
                              reporting could be on a specified timetable with sunset provisions. These
                              required evaluations could be broadly modeled on the evaluation
                              requirements of OPM’s personnel demonstration program. Under the
                              demonstration project authority, agencies must evaluate and periodically
                              report on results, implementation of the demonstration project, cost and
                              benefits, impacts on veterans and other Equal Employment Opportunity
                              groups, adherence to merit principles, and the extent to which the lessons
                              from the project can be applied elsewhere, including governmentwide. The
                              reports could be done in consultation with or subject to review of OPM.




                              Page 5                                                          GAO-03-851T
Specific DOD Human
Capital Policies and
Practices
Performance Management and   There is widespread understanding that the basic approach to federal pay
Pay Reform                   is outdated and that we need to move to a more market- and performance-
                             based approach. Doing so will be essential if we expect to maximize the
                             performance and assure the accountability of the federal government for
                             the benefit of the American people. DOD has said that broad banded
                             performance management and pay for performance systems will be the
                             cornerstone of its new system.

                             Reasonable people can and will debate and disagree about the merits of
                             individual reform proposals. However, all should be able to agree that a
                             modern, reliable, effective, and validated performance management
                             system with adequate safeguards, including reasonable transparency and
                             appropriate accountability mechanisms, must serve as the fundamental
                             underpinning of any successful results-oriented pay reform. We are
                             pleased that both the House version of DOD’s fiscal year 2004
                             authorization bill and the proposed National Security Personnel System
                             Act contain statutory safeguards and standards along the lines that we
                             have been suggesting to help ensure that DOD’s pay for performance
                             efforts are fair to employees and improve both individual and
                             organizational performance.

                             The statutory standards described in the National Security Personnel
                             System Act proposal are intended to help ensure a fair, credible, and
                             equitable system that results in meaningful distinctions in individual
                             employee performance; employee involvement in the design and
                             implementation of the system; and effective transparency and
                             accountability measures, including appropriate independent
                             reasonableness reviews, internal grievance procedures, internal
                             assessments, and employee surveys. In our reviews of agencies’
                             performance management systems—as in our own experience with
                             designing and implementing performance-based pay reform for ourselves
                             at GAO—we have found that these safeguards are key to maximizing the
                             chances of success and minimizing the risk of failure and abuse.

                             The proposed National Security Personnel System Act also takes the
                             essential first step in requiring DOD to link the performance management
                             system to the agency’s strategic plan. Building on this, we suggest that
                             DOD should also be required to link its performance management system
                             to program and performance goals and desired outcomes. Linking the

                             Page 6                                                        GAO-03-851T
performance management system to related goals and desired outcomes
helps the organization ensure that its efforts are properly aligned and
reinforces the line of sight between individual performance and
organizational success so that an individual can see how her/his daily
responsibilities contribute to results and outcomes.

The proposed National Security Personnel System Act includes a detailed
list of elements that regulations for DOD’s broad band pay program must
cover. These elements appear to be taken from DOD’s experience with its
civilian acquisition workforce personnel demonstration project as well as
the plan, as described in an April 2, 2003 Federal Register notice to
integrate all of DOD’s current science and technology reinvention
laboratory demonstration projects under a single human capital
framework.3 Many of the required elements in the proposed National
Security Personnel System Act are entirely appropriate, such as a
communication and feedback requirement, a review process, and a
process for addressing performance that fails to meet expectations.
However, other required elements, such as “performance scores”, appear
to imply a particular approach to performance management that, going
forward, may or may not be appropriate for DOD, and therefore may have
the unintended consequence of reducing DOD’s flexibility to make
adjustments. Congress has an important and continuing role to play in the
design and implementation of the federal government’s personnel policies
and procedures. Congress should consider how best to balance its
responsibilities with agencies’ needs for the flexibility to respond to
changing circumstances.

Finally, under the proposed act, for fiscal years 2004 through 2008, the
overall amount allocated for compensation for civilian employees of an
organizational or functional unit of DOD that is included in NSPS shall not
be less than the amount of civilian pay that would have been allocated to
such compensation under the General Schedule. After fiscal year 2008,
DOD’s regulations are to provide a formula for calculating an overall
amount, which is to ensure that employees in NSPS are not disadvantaged
in terms of the overall amount of pay available as a result of their
conversion into NSPS while providing DOD with flexibility to
accommodate changes in the function of the organization, the mix of
employees performing those functions, and other changes that might
affect pay levels.


3
    68 Fed. Reg. 16,119-16,142 (2003).



Page 7                                                         GAO-03-851T
                               Congress has had a longstanding and legitimate interest in federal
                               employee pay and compensation policies and, as a result, there are
                               provisions consistent with that interest in the National Security Personnel
                               System Act. However, as currently constructed, the proposed bill may
                               have the unintended consequence of creating disincentives, until fiscal
                               year 2009, for DOD to ensure that it has the most effective and efficient
                               organizational structure in place. This is because, based on our
                               understanding of the bill’s language, if DOD were to reorganize, outsource,
                               or undertake other major change initiatives through 2008 in an
                               organizational or functional unit that is part of NSPS, DOD may still be
                               required to allocate an overall amount for compensation to the
                               reorganized unit based on the number and mix of employees in place prior
                               to conversion into NSPS. In other words, if priorities shift and DOD needs
                               to downsize a unit in NSPS significantly, it may still be required that the
                               downsized unit’s overall compensation level remain the same as it would
                               have been in the absence of the downsizing. While pay protections during
                               a transition period are generally appropriate to build employee support for
                               the changes, we believe that, should the Congress decide to require overall
                               organizational compensation protection, it should build in additional
                               flexibilities for DOD to make adjustments in response to changes in the
                               size of organizations, mix of employees, and other relevant factors.

DOD Senior Executive Service   The current allowable total annual compensation limit for senior
Performance and Pay Reforms    executives would be increased up to the Vice President's total annual
                               compensation (base pay, locality pay, and awards and bonuses) in the
                               proposed National Security Personnel System Act and the House National
                               Defense Authorization Act for Fiscal Year 2004. In addition, the highest
                               rate of (base) pay for senior executives would be increased in the House
                               version of the authorization bill.

                               The Homeland Security Act provided that OPM, with the concurrence of
                               the Office of Management and Budget, certify that agencies have
                               performance appraisal systems that, as designed and applied, make
                               meaningful distinctions based on relative performance before an agency
                               could increase its total annual compensation limit for senior executives.
                               While the House version of DOD’s fiscal year 2004 authorization bill would
                               still require an OPM certification process to increase the highest rate of
                               pay for senior executives, neither the proposed National Security
                               Personnel System Act nor the House bill would require such a certification
                               for increasing the total annual compensation limit for senior executives.




                               Page 8                                                         GAO-03-851T
                                To be generally consistent with the Homeland Security Act, we believe
                                that the Congress should require that OPM certify that the DOD senior
                                executive service (SES) performance management system makes
                                meaningful distinctions in performance and employs the other practices
                                used by leading organizations to develop effective performance
                                management systems, including establishing a clear, direct connection
                                between (1) SES performance ratings and rewards and (2) the degree to
                                which the organization achieved its goals. DOD would be required to
                                receive the OPM certification before it could increase the total annual
                                compensation limit and/or the highest rate of pay for its senior executives.

Attracting Key Talent for DOD   The National Security Personnel System Act contains a number of
                                provisions designed to give DOD flexibility to help obtain key critical
                                talent. It allows DOD greater flexibility to (1) hire experts and pay them
                                special rates for temporary periods up to six years, and (2) define benefits
                                for certain specialized overseas employees. Specifically, the Secretary
                                would have the authority to establish a program to attract highly qualified
                                experts in needed occupations with the flexibility to establish the rate of
                                pay, eligibility for additional payments, and terms of the appointment.
                                These authorities give DOD considerable flexibility to obtain and
                                compensate individuals and exempt them from several provisions of
                                current law. Consistent with our earlier suggestions, the bill would limit
                                the number of experts employed at any one time to 300. The Congress
                                should also consider requiring that these provisions only be used to fill
                                critically needed skills identified in a DOD strategic human capital plan,
                                and that DOD report on the use of the authorities under these sections
                                periodically.


                                As I mentioned at the outset of my statement today, the consideration of
Governmentwide                  human capital reforms for DOD naturally suggests opportunities for
Human Capital                   governmentwide reform as well. The following provides some suggestions
                                in that regard.
Reforms
Governmentwide                  We believe that the Congress should consider providing governmentwide
Performance-Based Pay           authority to implement broad banding, other pay for performance systems,
and Other Human Capital         and other personnel authorities whereby whole agencies are allowed to
                                use additional authorities after OPM has certified that they have the
Authorities                     institutional infrastructures in place to make effective and fair use of those
                                authorities. To obtain additional authority, an agency should be required
                                to have an OPM-approved human capital plan that is fully integrated with
                                the agency’s strategic plan. These plans need to describe the agency’s

                                Page 9                                                           GAO-03-851T
                         critical human capital needs and how the new provisions will be used to
                         address the critical needs. The plan should also identify the safeguards or
                         other measures that will be applied to ensure that the authorities are
                         carried out fairly and in a manner consistent with merit system principles
                         and other national goals.

                         Furthermore, the Congress should establish statutory principles for the
                         standards that an agency must have in place before OPM can grant
                         additional pay flexibilities. The standards for DOD’s performance
                         management system contained in the National Security Personnel System
                         Act are the appropriate place to start. An agency would have to
                         demonstrate, and OPM would have to certify, that a modern, effective,
                         credible, and, as appropriate, validated performance management system
                         with adequate safeguards, including reasonable transparency and
                         appropriate accountability mechanisms, is in place to support more
                         performance-based pay and related personnel decisions before the agency
                         could put the new system in operation. OPM should be required to act on
                         any individual certifications within prescribed time frames (e.g., 30–60
                         days).

                         Consistent with our suggestion to have DOD evaluate and report on its
                         efforts, agencies should also be required to evaluate the use of any new
                         pay or other human capital authorities periodically. Such evaluations, in
                         consultation with or subject to review of OPM, could be broadly modeled
                         on the evaluation requirements of OPM’s personnel demonstration
                         program.


Governmentwide SES       Additional efforts should be undertaken to move the SES to an approach
Performance and Pay      where pay and rewards are more closely tied to performance. This is
Reforms                  consistent with the proposed Senior Executive Service Reform Act of
                         2003. Any effort to link pay to performance presupposes that effective,
                         results-oriented strategic and annual performance planning and reporting
                         systems are in place in an agency. That is, agencies must have a clear
                         understanding of the program results to be achieved and the progress that
                         is being made toward those intended results if they are to link pay to
                         performance. The SES needs to take the lead in matters related to pay for
                         performance.


Performance Management   We believe it would be highly desirable for the Congress to establish a
Improvement Funds        governmentwide fund where agencies, based on a sound business case,
                         could apply to OPM for funds to be used to modernize their performance

                         Page 10                                                         GAO-03-851T
                         management systems and ensure that those systems have adequate
                         safeguards to prevent abuse. Too often, agencies lack the performance
                         management systems needed to effectively and fairly make pay and other
                         personnel decisions.

                         The basic idea of a governmentwide fund would be to provide for targeted
                         investments needed to prepare agencies to use their performance
                         management systems as strategic tools to achieve organizational results
                         and drive cultural change. Building such systems and safeguards will likely
                         require making targeted investments in agencies’ human capital programs,
                         as our own experience has shown. (If successful, this approach to targeted
                         investments could be expanded to foster and support agencies’ related
                         transformation efforts, including other aspects of the High Performing
                         Organization concept recommended by the Commercial Activities Panel.4)


Additional Targeted      Finally, we also believe that the Congress should enact additional targeted
Governmentwide Reforms   and governmentwide human capital reforms for which there is a
                         reasonable degree of consensus. Many of the provisions in the proposed
                         Federal Workforce Flexibility Act of 2003 and the governmentwide human
                         capital provisions of the House version of DOD’s fiscal year 2004
                         authorization bill fall into this category.


                         Since we designated strategic human capital management as a
Summary                  governmentwide high-risk area in January 2001, the Congress, the
Observations             administration, and agencies have taken steps to address the federal
                         government’s human capital shortfalls. In a number of statements before
                         the Congress over the last 2 years, I have urged the government to seize on
                         the current momentum for change and enact lasting improvements.
                         Significant progress has been—and is being—made in addressing the
                         federal government’s pressing human capital challenges. But experience
                         has shown that in making major changes in the cultures of organizations,




                         4
                           The panel was mandated by section 832 of the National Defense Authorization Act for
                         Fiscal Year 2001, which required the Comptroller General to convene a panel of experts to
                         study the process used by the federal government to make sourcing decisions. After a
                         yearlong study, the panel published its report on April 30, 2002. See Commercial Activities
                         Panel, Improving the Sourcing Decisions of the Government: Final Report (Washington,
                         D.C.: Apr. 30, 2002). The report can be found on GAO’s Web site at www.gao.gov under the
                         Commercial Activities Panel heading.



                         Page 11                                                                      GAO-03-851T
                  how it is done, when it is done, and the basis on which it is done can make
                  all the difference in whether we are ultimately successful.

                  DOD and other agency-specific human capital reforms should be enacted
                  to the extent that the problems being addressed and the solutions offered
                  are specific to particular agencies. A governmentwide approach should be
                  used to address certain flexibilities that have broad-based application and
                  serious potential implications for the civil service system, in general, and
                  OPM, in particular. This approach will help to accelerate needed human
                  capital reform in DOD and throughout the rest of the federal government.

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


                  For further information about this statement, please contact Derek B.
Contacts and      Stewart, Director, Defense Capabilities and Management, on (202) 512-
Acknowledgments   5140 or at stewartd@gao.gov. For further information on governmentwide
                  human capital issues, please contact J. Christopher Mihm, Director,
                  Strategic Issues, on (202) 512-6806 or at mihmj@gao.gov. Major
                  contributors to this testimony included William Doherty, Bruce Goddard,
                  Hilary Murrish, Lisa Shames, Edward H. Stephenson, Martha Tracy, and
                  Michael Volpe.




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