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Testimony:

Before the Subcommittee on Oversight of Government Management, the 
Federal Workforce, and the District of Columbia, Senate Committee on 
Homeland Security and Governmental Affairs: 

GAO:

For Release on Delivery Expected at 10:00 a.m. EST:

Thursday, February 10, 2005:

Human Capital: 

Preliminary Observations on Final DHS Human Capital Regulations: 
 
Statement of David M. Walker, Comptroller General of the United States: 

GAO-05-320T:

GAO Highlights:

Highlights of GAO-05-320T, a testimony before the Subcommittee on 
Oversight of Government Management, the Federal Workforce, and the 
District of Columbia, Committee on Homeland Security and Governmental 
Affairs, U.S. Senate: 

Why GAO Did This Study:

At the center of any agency transformation, such as the one envisioned 
for the Department of Homeland Security (DHS), are the people who will 
make it happen. Thus, strategic human capital management at DHS can 
help it marshal, manage, and maintain the people and skills needed to 
meet its critical mission. Congress provided DHS with significant 
flexibility to design a modern human capital management system. DHS and 
the Office of Personnel Management (OPM) have now jointly released the 
final regulations on DHS’s new human capital system. 

Last year, with the release of the proposed regulations, GAO observed 
that many of the basic principles underlying the regulations were 
consistent with proven approaches to strategic human capital management 
and deserved serious consideration. However, some parts of the human 
capital system raised questions for DHS, OPM, and Congress to consider 
in the areas of pay and performance management, adverse actions and 
appeals, and labor management relations. GAO also identified multiple 
implementation challenges for DHS once the final regulations for the 
new system were issued. 

This testimony provides preliminary observations on selected provisions 
of the final regulations.


What GAO Found:

GAO believes that the regulations contain many of the basic principles 
that are consistent with proven approaches to strategic human capital 
management. For example, many elements for a modern compensation 
system—such as occupational clusters, pay bands, and pay ranges that 
take into account factors such as labor market conditions—are to be 
incorporated into DHS’s new system. However, these final regulations 
are intended to provide an outline and not a detailed, comprehensive 
presentation of how the new system will be implemented. Thus, DHS has 
considerable work ahead to define the details of the implementation of 
its system and understanding these details is important in assessing 
the overall system.

The implementation challenges we identified last year are still 
critical to the success of the new system. Also, DHS appears to be 
committed to continue to involve employees, including unions, 
throughout the implementation process. Specifically, according to the 
regulations, employee representatives or union officials are to have 
opportunities to participate in developing the implementing directives, 
hold four membership seats on the Homeland Security Compensation 
Committee, and help in the design and review the results of evaluations 
of the new system. Further, GAO believes that to help ensure the 
quality of that involvement, DHS will need to 

* Ensure sustained and committed leadership. A Chief Operating Officer/
Chief Management Officer or similar position at DHS would serve to 
elevate, integrate, and institutionalize responsibility for this 
critical endeavor and help ensure its success by providing the 
continuing, focused attention needed to successfully complete the 
multiyear conversion to the new human capital system.

* Establish an overall communication strategy. According to DHS, its 
planned communication strategy for its new human capital system will 
include global e-mails, satellite broadcasts, Web pages, and an 
internal DHS weekly newsletter. A key implementation step for DHS is to 
assure an effective and on-going two-way communication effort that 
creates shared expectations among managers, employees, customers, and 
stakeholders. 

While GAO strongly supports human capital reform in the federal 
government, how it is done, when it is done, and the basis on which it 
is done can make all the difference in whether such efforts are 
successful. GAO’s implementation of its own human capital authorities, 
such as pay bands and pay for performance, could help inform other 
organizations as they design systems to address their human capital 
needs. The final regulations for DHS’s new system are especially 
critical because of the potential implications for related 
governmentwide reforms. 

www.gao.gov/cgi-bin/getrpt?GAO-05-320T.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Eileen Larence at (202) 
512-6806 or larencee@gao.gov.

[End of section]

Chairman Voinovich and Members of the Subcommittee:

I appreciate the opportunity to be here today to provide our 
preliminary observations on the Department of Homeland Security's (DHS) 
final regulations on its new human capital system, which were published 
last week jointly by the Secretary of DHS and the Director of the 
Office of Personnel Management (OPM). As the title of this hearing 
suggests--"Unlocking the Potential within Homeland Security: The New 
Human Resources System"--at the center of any agency transformation, 
such as the one envisioned for DHS, are the people who make it happen. 
Thus, strategic human capital management at DHS can help it marshal, 
manage, and maintain the people and skills needed to meet its critical 
mission.

As we recently reported in our High-Risk Series, significant changes in 
how the federal workforce is managed, such as DHS's new human capital 
system, are underway.[Footnote 1] Consequently, there is general 
recognition that the government needs a framework to guide this human 
capital reform, one that Congress and the administration can implement 
to enhance performance, ensure accountability, and position the nation 
for the future. These final regulations, which according to DHS will 
affect about 110,000 federal employees, are especially critical because 
of their implications for governmentwide reforms. My statement today 
makes three overall points.

First, DHS has considerable work ahead to define the details of the 
implementation of its system and understanding these details is 
important in assessing the overall system. Nonetheless, similar to the 
observations we made a year ago on the proposed DHS human capital 
regulations, we find that the final regulations contain many of the 
basic principles that are consistent with proven approaches to 
strategic human capital management, including several approaches used 
by GAO.[Footnote 2] However, these final regulations are intended to 
provide an outline and not a detailed, comprehensive presentation of 
how the new system will be implemented. DHS is to issue implementing 
directives to carry out any policy or procedure under the new system. 
Thus, how it is done, when it is done, and the basis on which it is 
done can make all the difference in whether DHS's human capital system 
will be successful.

Going forward, DHS and other agencies must ensure they have the 
institutional infrastructure in place to make effective use of their 
new authorities. 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, mission, and desired outcomes; the capabilities to effectively 
develop and implement a new human capital system; and importantly, the 
existence of a modern, effective, and credible performance management 
system that includes adequate safeguards to ensure fair, effective, 
non-discriminatory, and credible implementation of the new system.

Second, DHS appears to be committed to continue to involve employees, 
including union officials, throughout the implementation process, 
another critical ingredient for success. Specifically, under the DHS 
final regulations, employee representatives or union officials are to 
have opportunities to participate in developing the implementing 
directives, as outlined under the "continuing collaboration" 
provisions; are to hold four membership seats on the Homeland Security 
Compensation Committee; and are to help in the design and review the 
results of evaluations of the new system. We believe that sustained and 
committed leadership can provide the continuing, focused attention 
needed to successfully complete this multiyear conversion to the new 
human capital system and an ongoing two-way communication strategy can 
help ensure the quality of that involvement.

Third, and finally, recent actions, as evidenced by these DHS final 
regulations, have significant, precedent-setting implications for the 
rest of government. They represent both progress and opportunities, but 
also raise legitimate concerns. We are fast approaching the point where 
"standard governmentwide" human capital policies and processes are 
neither standard nor governmentwide. Human capital reform should avoid 
further fragmentation within the civil service, ensure reasonable 
consistency within the overall civilian workforce, and help maintain a 
reasonably level playing field among federal agencies when competing 
for talent. Further, human capital reform should maintain key merit 
principles and appropriate safeguards against discrimination and other 
prohibited personnel practices.

This morning I would like to provide some observations on the final DHS 
regulations, discuss the multiple challenges that DHS confronts as it 
moves towards implementation of its new human capital system, and then 
suggest a governmentwide framework that can serve as a starting point 
to advance human capital reform. Lastly, I will highlight some of GAO's 
recent experiences in implementing a performance-based and market-
oriented pay system since we believe that other agencies can benefit 
from our experiences.

Preliminary Observations on the Final DHS Human Capital Regulations:

The final regulations establish a new human capital system for DHS that 
is intended to assure its ability to attract, retain, and reward a 
workforce that is able to meet its critical mission. Further, the human 
capital system is to provide for greater flexibility and accountability 
in the way employees are to be paid, developed, evaluated, afforded due 
process, and represented by labor organizations while reflecting the 
principles of merit and fairness embodied in the statutory merit 
systems principles.

Predictable with any change management initiative, the DHS regulations 
have raised some concerns among employee groups, unions, and other 
stakeholders because they do not have all the details of how the system 
will be implemented and impact them. We have reported that individuals 
inevitably worry during any change management initiative because of 
uncertainty over new policies and procedures.[Footnote 3] A key 
practice to address this worry is to involve employees and their 
representatives to obtain their ideas and gain their ownership for the 
initiative. Thus, a significant improvement from the proposed 
regulations is that now employee representatives are to be provided 
with an opportunity to remain involved. Specifically, they can discuss 
their views with DHS officials and/or submit written comments as 
implementing directives are developed, as outlined under the 
"continuing collaboration" provisions. This collaboration is 
consistent with DHS's statutory authority to establish a new human 
capital system, which requires such continuing collaboration. Under the 
regulations, nothing in the continuing collaboration process is to 
affect the right of the Secretary to determine the content of 
implementing directives and to make them effective at any time.

In addition, the final regulations state that DHS is to establish 
procedures for evaluating the implementation of its human capital 
system. High-performing organizations continually review and revise 
their human capital management systems based on data-driven lessons 
learned and changing needs in the environment. Collecting and analyzing 
data is the fundamental building block for measuring the effectiveness 
of these systems in support of the mission and goals of the agency.

We continue to believe that many of the basic principles underlying the 
DHS regulations are generally consistent with proven approaches to 
strategic human capital management. Today, I will provide our 
preliminary observations on the following elements of DHS's human 
capital system as outlined in the final regulations--pay and 
performance management, adverse actions and appeals, and labor-
management relations.

Pay and Performance Management:

Last year, we testified that the DHS proposal reflects a growing 
understanding that the federal government needs to fundamentally 
rethink its current approach to pay and better link pay to individual 
and organizational performance.[Footnote 4] To this end, the DHS 
proposal takes another valuable step towards modern performance 
management. Among the key provisions is a performance-based and market-
oriented pay system.

We have observed that a competitive compensation system can help 
organizations attract and retain a quality workforce.[Footnote 5] To 
begin to develop such a system, organizations assess the skills and 
knowledge they need; compare compensation against other public, 
private, or nonprofit entities competing for the same talent in a given 
locality; and classify positions along levels of responsibility. While 
one size does not fit all, organizations generally structure their 
competitive compensation systems to separate base salary--which all 
employees receive--from other special incentives, such as merit 
increases, performance awards, or bonuses, which are provided based on 
performance and contributions to organizational results.

According to the final regulations, DHS is to establish occupational 
clusters and pay bands that replace the current General Schedule (GS) 
system now in place for much of the civil service. DHS may, after 
coordination with OPM, establish occupational clusters based on factors 
such as mission or function, nature of work, qualifications or 
competencies, career or pay progression patterns, relevant labor-market 
features, and other characteristics of those occupations or positions. 
DHS is to document in implementing directives the criteria and 
rationale for grouping occupations or positions into clusters as well 
as the definitions for each band's range of difficulty and 
responsibility, qualifications, competencies, or other characteristics 
of the work.

As we testified last year, pay banding and movement to broader 
occupational clusters can both facilitate DHS's movement to a pay for 
performance system and help DHS to better define occupations, which can 
improve the hiring process. We have reported that the current GS system 
as defined in the Classification Act of 1949 is a key barrier to 
comprehensive human capital reform and the creation of broader 
occupational job clusters and pay bands would aid other agencies as 
they seek to modernize their personnel systems.[Footnote 6] Today's 
jobs in knowledge-based organizations require a much broader array of 
tasks that may cross over the narrow and rigid boundaries of job 
classifications of the GS system.

Under the final regulations, DHS is to convert employees from the GS 
system to the new system without a reduction in their current pay. 
According to DHS, when employees are converted from the GS system to a 
pay band, their base pay is to be adjusted to include a percentage of 
their next within-grade increase, based on the time spent in their 
current step and the waiting period for the next step. DHS stated that 
most employees would receive a slight increase in salary upon 
conversion to a pay band. This approach is consistent with how several 
of OPM's personnel demonstration projects converted employees from the 
GS system.

The final DHS regulations include other elements of a modern 
compensation system. For example, the regulations provide that DHS may, 
after coordination with OPM, set and adjust the pay ranges for each pay 
band taking into account mission requirements, labor market conditions, 
availability of funds, pay adjustments received by other federal 
employees, and any other relevant factors. In addition, DHS may, after 
coordination with OPM, establish locality rate supplements for 
different occupational clusters or for different bands within the same 
cluster in the same locality pay area. According to DHS, these locality 
rates would be based on the cost of labor rather than cost of living 
factors. The regulations state that DHS would use recruitment or 
retention bonuses if it experiences such problems due to living costs 
in a particular geographic area.

Especially when developing a new performance management system, 
high-performing organizations have found that actively involving 
employees and key stakeholders, such as unions or other employee 
associations, helps gain ownership of the system and improves 
employees' confidence and belief in the fairness of the 
system.[Footnote 7] DHS recognized that the system must be designed and 
implemented in a transparent and credible manner that involves 
employees and employee representatives. A new and positive addition to 
the final regulations is a Homeland Security Compensation Committee 
that is to provide oversight and transparency to the compensation 
process. The committee--consisting of 14 members, including four 
officials of labor organizations--is to develop recommendations and 
options for the Secretary's consideration on compensation and 
performance management matters, including the annual allocation of 
funds between market and performance pay adjustments.

While the DHS regulations contain many elements of a performance-based 
and market-oriented pay system, there are several issues that we 
identified last year that DHS will need to continue to address as it 
moves forward with the implementation of the system. These issues 
include linking organizational goals to individual performance, using 
competencies to provide a fuller assessment of performance, making 
meaningful distinctions in employee performance, and continuing to 
incorporate adequate safeguards to ensure fairness and guard against 
abuse.

Linking Organizational Goals to Individual Performance:

Consistent with leading practice, the DHS performance management system 
is to align individual performance expectations with the mission, 
strategic goals, organizational program and policy objectives, annual 
performance plans, and other measures of performance. DHS's performance 
management system can be a vital tool for aligning the organization 
with desired results and creating a "line of sight" showing how team, 
unit, and individual performance can contribute to overall 
organizational results.[Footnote 8] However, as we testified last year, 
agencies struggle to create this line of sight.

Using Competencies to Provide a Fuller Assessment of Performance:

DHS appropriately recognizes that given its vast diversity of work, 
managers and employees need flexibility in crafting specific 
performance expectations for their employees. These expectations may 
take the form of competencies an employee is expected to demonstrate on 
the job, among other things. However, as DHS develops its implementing 
directives, the experiences of leading organizations suggest that DHS 
should reconsider its position to merely allow, rather than require, 
the use of core competencies that employees must demonstrate as a 
central feature of its performance management system. Based on our 
review of others' efforts and our own experience at GAO, core 
competencies can help reinforce employee behaviors and actions that 
support the department's mission, goals, and values and can provide a 
consistent message to employees about how they are expected to achieve 
results.[Footnote 9] For example, an OPM personnel demonstration 
project--the Civilian Acquisition Workforce Personnel Demonstration 
Project--covers various organizational units within the Department of 
Defense and applies core competencies for all employees, such as 
teamwork/cooperation, customer relations, leadership/supervision, and 
communication.

Similarly, as we testified last year, DHS could use competencies--such 
as achieving results, change management, cultural sensitivity, teamwork 
and collaboration, and information sharing--to reinforce employee 
behaviors and actions that support its mission, goals, and values and 
to set expectations for individuals' roles in DHS's transformation. By 
including such competencies throughout its performance management 
system, DHS could create a shared responsibility for organizational 
success and help assure accountability for change.

Making Meaningful Distinctions in Employee Performance:

High-performing organizations seek to create pay, incentive, and reward 
systems that clearly link employee knowledge, skills, and contributions 
to organizational results. These organizations make meaningful 
distinctions between acceptable and outstanding performance of 
individuals and appropriately reward those who perform at the highest 
level.[Footnote 10] The final regulations state that DHS supervisors 
and managers are to be held accountable for making meaningful 
distinctions among employees based on performance, fostering and 
rewarding excellent performance, and addressing poor performance. While 
DHS states that as a general matter, pass/fail ratings are incompatible 
with pay for performance, it is to permit use of pass/fail ratings for 
employees in the "Entry/Developmental" band or in other pay bands under 
extraordinary circumstances as determined by the Secretary.

DHS is to require the use of a least three summary rating levels for 
other employee groups. We urge DHS to consider using at least four 
summary rating levels to allow for greater performance rating and pay 
differentiation. This approach is in the spirit of the new 
governmentwide performance-based pay system for the Senior Executive 
Service (SES), which requires at least four levels to provide a clear 
and direct link between SES performance and pay as well as to make 
meaningful distinctions based on relative performance.[Footnote 11] 
Cascading this approach to other levels of employees can help DHS 
recognize and reward employee contributions and achieve the highest 
levels of individual performance.

Providing Adequate Safeguards to Ensure Fairness and Guard Against 
Abuse:

As DHS develops its implementing directives, it also needs to continue 
to build safeguards into its performance management system. A concern 
that employees often express about any pay for performance system is 
supervisors' ability to assess performance fairly. Using safeguards, 
such as having an independent body to conduct reasonableness reviews of 
performance management decisions can help to allay these concerns and 
build a fair, credible, and transparent system.

It should be noted that the final regulations no longer provide for a 
Performance Review Board (PRB) to review ratings in order to promote 
consistency, provide general oversight of the performance management 
system, and ensure it is administered in a fair, credible, and 
transparent manner. According to the final regulations, participating 
labor organizations expressed concern that the PRBs could delay pay 
decisions and give the appearance of unwarranted interference in the 
performance rating process. However, in the final regulations, DHS 
states that it continues to believe that an oversight mechanism is 
important to the credibility of the department's pay for performance 
system and that the Compensation Committee, in place of PRBs, is to 
conduct an annual review of performance payout summary data. While much 
remains to be determined about how the Compensation Committee is to 
operate, we believe that the effective implementation of such a 
committee is important to assuring that predecisional internal 
safeguards exist to help achieve consistency and equity, and assure 
non-discrimination and non-politicization of the performance 
management process.

We have also reported that agencies need to assure reasonable 
transparency and provide appropriate accountability mechanisms in 
connection with the results of the performance management 
process.[Footnote 12] For DHS, this can include publishing internally 
the overall results of performance management and individual pay 
decisions while protecting individual confidentiality and reporting 
periodically on internal assessments and employee survey results 
relating to the performance management system. Publishing this 
information can provide employees with the information they need to 
better understand the performance management system and to generally 
compare their individual performance with their peers. We found that 
several of OPM's personnel demonstration projects publish information 
for employees on internal Web sites that include the overall results of 
performance appraisal and pay decisions, such as the average 
performance rating, the average pay increase, and the average award for 
the organization and for each individual unit.

Adverse Actions and Appeals:

DHS's final regulations are intended to simplify and streamline the 
employee adverse action process to provide greater flexibility for the 
department and to minimize delays, while also ensuring due process 
protections. It is too early to tell what impact, if any, these 
regulations would have on DHS's operations and employees or other 
entities, such as the Merit Systems Protection Board (MSPB). Close 
monitoring of any unintended consequences, such as on MSPB and its 
ability to manage cases from DHS and other federal agencies, is 
warranted.

In terms of adverse actions, the regulations modify the current federal 
system in that the DHS Secretary will have the authority to identify 
specific offenses for which removal is mandatory. In our previous 
testimony on the proposed regulations, we expressed some caution about 
this new authority and pointed out that the process for determining and 
communicating which types of offenses require mandatory removal should 
be explicit and transparent. We noted that such a process should 
include an employee notice and comment period before implementation and 
collaboration with relevant congressional stakeholders and employee 
representatives. The final DHS regulations explicitly provide for 
publishing a list of the mandatory removal offenses in the Federal 
Register and in DHS's implementing directives and making these offenses 
known to employees annually.

In last year's testimony, we also suggested that DHS exercise caution 
when identifying specific removable offenses and the specific 
punishment. When developing and implementing the regulations, DHS might 
learn from the experience of the Internal Revenue Service's (IRS) 
implementation of its mandatory removal provisions.[Footnote 13] We 
reported that IRS officials believed this provision had a negative 
impact on employee morale and effectiveness and had a "chilling effect" 
on IRS frontline enforcement employees who were afraid to take certain 
appropriate enforcement actions.[Footnote 14] Careful drafting of each 
removable offense is critical to ensure that the provision does not 
have unintended consequences.

Under the DHS regulations, employees alleged to have committed these 
mandatory removal offenses are to have the right to a review by a newly 
created panel. DHS regulations provide for judicial review of the 
panel's decisions. Members of this three-person panel are to be 
appointed by the Secretary for three-year terms. In last year's 
testimony, we noted that the independence of the panel that is to hear 
appeals of mandatory removal actions deserved further consideration. 
The final regulations address the issue of independence by prescribing 
additional qualification requirements which emphasize integrity and 
impartiality and requiring the Secretary to consider any lists of 
candidates submitted by union representatives for panel positions other 
than the chair. Employee perception concerning the independence of this 
panel is critical to the mandatory removal process.

Regarding the appeal of adverse actions other than mandatory removals, 
the DHS regulations generally preserve the employee's basic right to 
appeal decisions to an independent body--MSPB--but with procedures 
different from those applicable to other federal employees.[Footnote 
15] However, in a change from the proposed regulations in taking 
actions against employees for performance or conduct issues, DHS is to 
meet a higher standard of evidence--a "preponderance of evidence" 
instead of "substantial evidence." For performance issues, while this 
higher standard of evidence means that DHS would face a greater burden 
of proof than most agencies to pursue these actions, DHS managers are 
not required to provide employees performance improvement periods, as 
is the case for other federal employees. For conduct issues, DHS would 
face the same burden of proof as most agencies.

The regulations shorten the notification period before an adverse 
action can become effective and provide an accelerated MSPB 
adjudication process. In addition, MSPB may no longer modify a penalty 
for a conduct-based adverse action that is imposed on an employee by 
DHS unless such penalty was "wholly without justification." The DHS 
regulations also stipulate that MSPB can no longer require that parties 
enter into settlement discussions, although either party may propose 
doing so. DHS expressed concerns that settlement should be a completely 
voluntary decision made by parties on their own. However, settling 
cases has been an important tool in the past at MSPB, and promotion of 
settlement at this stage should be encouraged.

The final regulations continue to support a commitment to the use of 
Alternative Dispute Resolution (ADR), which we previously noted was a 
positive development. To resolve disputes in a more efficient, timely, 
and less adversarial manner, federal agencies have been expanding their 
human capital programs to include ADR approaches, including the use of 
ombudsmen as an informal alternative to addressing conflicts.[Footnote 
16] ADR is a tool for supervisors and employees alike to facilitate 
communication and resolve conflicts. As we have reported, ADR helps 
lessen the time and the cost burdens associated with the federal 
redress system and has the advantage of employing techniques that focus 
on understanding the disputants' underlying interests over techniques 
that focus on the validity of their positions.[Footnote 17] For these 
and other reasons, we believe that it is important to continue to 
promote ADR throughout the process.

Labor-Management Relations:

Under the DHS regulations, the scope and method of labor union 
involvement in human capital issues are to change. DHS management is no 
longer required to engage in collective bargaining and negotiations on 
as many human capital policies and processes as in the past. For 
example, certain actions that DHS has determined are critical to the 
mission and operations of the department, such as deploying staff and 
introducing new technologies, are now considered management rights and 
are not subject to collective bargaining and negotiation. DHS, however, 
is to confer with employees and unions in developing the procedures it 
will use to take these actions. Other human capital policies and 
processes that DHS characterizes as "non-operational," such as 
selecting, promoting, and disciplining employees, are also not subject 
to collective bargaining, but DHS must negotiate the procedures it will 
use to take these actions. Finally, certain other policies and 
processes, such as how DHS will reimburse employees for any 
"significant and substantial" adverse impacts resulting from an action, 
such as a rapid change in deployment, must be negotiated.

In addition, DHS is to establish its own internal labor relations 
board--the Homeland Security Labor Relations Board--to deal with most 
agencywide labor relations policies and disputes rather than submit 
them to the Federal Labor Relations Authority. DHS stated that the 
unique nature of its mission--homeland protection--demands that 
management have the flexibility to make quick resource decisions 
without having to negotiate them, and that its own internal board would 
better understand its mission and, therefore, be better able to address 
disputes. Labor organizations are to nominate names of individuals to 
serve on the Board and the regulations established some general 
qualifications for the board members. However, the Secretary is to 
retain the authority to both appoint and remove any member. Similar to 
the mandatory removal panel, employee perception concerning the 
independence of this board is critical to the resolution of the issues 
raised over labor relations policies and disputes. These changes have 
not been without controversy, and four federal employee unions have 
filed suit alleging that DHS has exceeded its authority under the 
statute establishing the DHS human capital system.[Footnote 18]

Our previous work on individual agencies' human capital systems has not 
directly addressed the scope of specific issues that should or should 
not be subject to collective bargaining and negotiations. At a forum we 
co-hosted exploring the concept of a governmentwide framework for human 
capital reform, which I will discuss later, participants generally 
agreed that the ability to organize, bargain collectively, and 
participate in labor organizations is an important principle to be 
retained in any framework for reform. It was also suggested at the 
forum that unions must be both willing and able to actively collaborate 
and coordinate with management if unions are to be effective 
representatives of their members and real participants in any human 
capital reform.

DHS Confronts Many Challenges to Successful Implementation:

With the issuance of the final regulations, DHS faces multiple 
challenges to the successful implementation of its new human capital 
system. We identified multiple implementation challenges at last year's 
hearing. Subsequently, we reported that DHS's actions to date in 
designing its human capital system and its stated plans for future work 
on its system are helping to position the department for successful 
implementation.[Footnote 19] Nevertheless, DHS was in the early stages 
of developing the infrastructure needed for implementing its new 
system. For more information on these challenges, as well as on related 
human capital topics, see the "Highlights" pages attached to this 
statement.

We believe that these challenges are still critical to the success of 
the new human capital system. In many cases, DHS has acknowledged these 
challenges and made a commitment to address them in regulations. Today 
I would like to focus on two additional implementation challenges--
ensuring sustained and committed leadership and establishing an overall 
communication strategy--and then reiterate challenges we previously 
identified, including providing adequate resources for implementing the 
new system and involving employees and other stakeholders in 
implementing the system.

Ensuring Sustained and Committed Leadership:

As DHS and other agencies across the federal government embark on 
large-scale organizational change initiatives, such as the new human 
capital system DHS is implementing, there is a compelling need to 
elevate, integrate, and institutionalize responsibility for such key 
functional management initiatives to help ensure their 
success.[Footnote 20] A Chief Operating Officer/Chief Management 
Officer (COO/CMO) or similar position can effectively provide the 
continuing, focused attention essential to successfully completing 
these multiyear transformations.

Especially for such an endeavor as critical as DHS's new human capital 
system, such a position would serve to:

* elevate attention that is essential to overcome an organization's 
natural resistance to change, marshal the resources needed to implement 
change, and build and maintain the organizationwide commitment to new 
ways of doing business;

* integrate this new system with various management responsibilities so 
they are no longer "stovepiped" and fit it into other organizational 
transformation efforts in a comprehensive, ongoing, and integrated 
manner; and:

* institutionalize accountability for the system so that the 
implementation of this critical human capital initiative can be 
sustained.

We have work underway at the request of Congress to assess DHS's 
management integration efforts, including the role of existing senior 
leadership positions as compared to a COO/CMO position, and expect to 
issue a report on this work next month.

Establishing an Overall Communication Strategy:

Another significant challenge for DHS is to assure an effective and 
ongoing two-way communication strategy that creates shared expectations 
about, and reports related progress on, the implementation of the new 
system. GAO has reported this is a key practice of a change management 
initiative.[Footnote 21] DHS final regulations recognize that all 
parties will need to make a significant investment in communication on 
the part of all parties in order to achieve successful implementation 
of its new human capital system. According to DHS, its communication 
strategy will include global e-mails, satellite broadcasts, Web pages, 
and an internal DHS weekly newsletter. DHS stated that its leaders will 
be provided tool kits and other aids to facilitate discussions and 
interactions between management and employees on program changes.

Given the attention over the regulations, one of the most relevant 
implementation steps is for DHS to continue two-way communication. 
Communication is not about just "pushing the message out." Rather, it 
should facilitate a two-way honest exchange with, and allow for 
feedback from, employees, customers, and key stakeholders. This 
communication is central to forming the effective internal and external 
partnerships that are vital to the success of any organization. 
Creating opportunities for employees to communicate concerns and 
experiences about any change management initiative allows employees to 
feel that their experiences are acknowledged and important to 
management during the implementation of the merger and transformation. 
Once this feedback is received, it is important to consider and use 
this solicited employee feedback to make any appropriate changes to its 
implementation. In addition, closing the loop by providing information 
on why key recommendations were not adopted is also important.

Providing Adequate Resources for Implementing the New System:

OPM reports that the increased costs of implementing alternative 
personnel systems should be acknowledged and budgeted for up 
front.[Footnote 22] DHS estimates the overall costs associated with 
implementing the new DHS system--including the development and 
implementation of a new pay and performance system, the conversion of 
current employees to that system, and the creation of its new labor 
relations board--will be approximately $130 million through fiscal year 
2007 (i.e., over a 4-year period) and less than $100 million will be 
spent in any 12-month period.

We found that based on the data provided by selected OPM personnel 
demonstration projects, direct costs associated with salaries and 
training were among the major cost drivers of implementing their pay 
for performance systems. Certain costs, such as those for initial 
training on the new system, are one-time in nature and should not be 
built into the base of DHS's budget. Other costs, such as employees' 
salaries, are recurring and thus would be built into the base of DHS's 
budget for future years.

We found that approaches the demonstration projects used to manage 
salary costs were to consider fiscal conditions and the labor market 
and to provide a mix of one-time awards and permanent pay increases. 
For example, rewarding an employee's performance with an award instead 
of an equivalent increase to base pay can reduce salary cost in the 
long run because the agency only has to pay the amount of the award one 
time, rather than annually. However, one approach that the 
demonstration projects used to manage costs that is not included in the 
final regulations is the use of "control points." We found that the 
demonstration projects used such a mechanism--sometimes called speed 
bumps--to manage progression through the bands to help ensure that 
employees' performance coincides with their salaries and prevent all 
employees from eventually migrating to the top of the band and thus 
increase costs.

According to the DHS regulations, its performance management system is 
designed to incorporate adequate training and retraining for 
supervisors, managers, and employees in the implementation and 
operation of the system. Each of OPM's personnel demonstration projects 
trained employees on the performance management system prior to 
implementation to make employees aware of the new approach, as well as 
periodically after implementation to refresh employee familiarity with 
the system. The training was designed to help employees understand 
their applicable competencies and performance standards; develop 
performance plans; write self-appraisals; become familiar with how 
performance is evaluated and how pay increases and awards decisions are 
made; and know the roles and responsibilities of managers, supervisors, 
and employees in the appraisal and payout processes.

Involving Employees and Other Stakeholders in Implementing the System:

We reported in September 2003 that DHS's and OPM's effort to design a 
new human capital system was collaborative and facilitated 
participation of employees from all levels of the department.[Footnote 
23] We recommended that the Secretary of DHS build on the progress that 
had been made and ensure that the communication strategy used to 
support the human capital system maximize opportunities for employee 
and key stakeholder involvement through the completion of design and 
implementation of the new system, with special emphasis on seeking the 
feedback and buy-in of frontline employees. In implementing this 
system, DHS should continue to recognize the importance of employee and 
key stakeholder involvement. Leading organizations involve employee 
unions, as well as involve employees directly, and consider their input 
in formulating proposals and before finalizing any related 
decisions.[Footnote 24]

To this end, DHS's revised regulations have attempted to recognize the 
importance of employee involvement in implementing the new personnel 
system. As we discussed earlier, the final DHS regulations provide for 
continuing collaboration in further development of the implementing 
directives and participation on the Compensation Committee. The 
regulations also provide that DHS is to involve employees in 
evaluations of the human capital system. Specifically, DHS is to 
provide designated employee representatives with the opportunity to be 
briefed and a specified timeframe to provide comments on the design and 
results of program evaluation. Further, employee representatives are to 
be involved at the identification of the scope, objectives, and 
methodology to be used in the program evaluation and in the review of 
draft findings and recommendations.

Framework for Governmentwide Human Capital Reform:

DHS has recently joined some other federal departments and agencies, 
such as the Department of Defense, GAO, National Aeronautics and Space 
Administration, and the Federal Aviation Administration, in receiving 
authorities intended to help them manage their human capital 
strategically to achieve results. To help advance the discussion 
concerning how governmentwide human capital reform should proceed, GAO 
and the National Commission on the Public Service Implementation 
Initiative hosted a forum in April 2004 on whether there should be a 
governmentwide framework for human capital reform and, if so, what this 
framework should include.[Footnote 25] While there was widespread 
recognition among the forum participants that a one-size-fits-all 
approach to human capital management is not appropriate for the 
challenges and demands government faces, there was equally broad 
agreement that there should be a governmentwide framework to guide 
human capital reform. Further, a governmentwide framework should 
balance the need for consistency across the federal government with the 
desire for flexibility so that individual agencies can tailor human 
capital systems to best meet their needs. Striking this balance is not 
easy to achieve, but is necessary to maintain a governmentwide system 
that is responsive enough to adapt to agencies' diverse missions, 
cultures, and workforces.

While there were divergent views among the forum participants, there 
was general agreement on a set of principles, criteria, and processes 
that would serve as a starting point for further discussion in 
developing a governmentwide framework in advancing human capital 
reform, as shown in figure 1.

Figure 1: Principles, Criteria, and Processes:

[See PDF for image] -graphic text: 

Principles that the government should retain in a framework for reform 
because of their inherent, enduring qualities: 

* Merit principles that balance organizational mission, goals, and 
performance objectives with individual rights and responsibilities; 
* Ability to organize, bargain collectively, and participate through 
labor organizations; 
* Certain prohibited personnel practices; 
* Guaranteed due process that is fair, fast, and final. 

Criteria that agencies should have in place as they plan for and manage 
their new human capital authorities: 

* Demonstrated business case or readiness for use of targeted 
authorities; 
* An integrated approach to results-oriented strategic planning and 
human capital planning and management; 
* Adequate resources for planning, implementation, training, and 
evaluation; 
* A modern, effective, credible, and integrated performance management 
system that includes adequate safeguards to ensure equity and prevent 
discrimination. 

Processes that agencies should follow as they implement new human 
capital authorities: 

* Prescribing regulations in consultation or jointly with the Office of 
Personnel Management; 
* Establishing appeals processes in consultation with the Merit Systems 
Protection Board; 
* Involving employees and stakeholders in the design and implementation 
of new human capital systems; 
* Phasing in implementation of new human capital systems; 
* Committing to transparency, reporting, and evaluation; 
* Establishing a communications strategy; 
* Assuring adequate training. 

Source: GAO.

[End of figure]

As the momentum accelerates for human capital reform, GAO is continuing 
to work with others to address issues of mutual interest and concern. 
For example, to follow up on the April forum, the National Academy of 
Public Administration and the National Commission on the Public Service 
Implementation Initiative convened a group of human capital 
stakeholders to continue the discussion of a governmentwide 
framework.[Footnote 26]

GAO's Experiences with Human Capital Reform:

As GAO has worked to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people, this subcommittee and others in Congress have 
continually provided us with the tools and authorities we need to carry 
out these responsibilities. We believe that it is vitally important to 
GAO's future that we continue modernizing and updating our human 
capital policies and practices in light of the changing environment and 
anticipated challenges ahead. Given our human capital infrastructure 
and our unique role in leading by example in major management areas, 
including human capital management, we believe that the federal 
government will benefit from GAO's experience with pay bands, pay for 
performance and other human capital reforms.

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 of your continued 
support, GAO has been able to establish a successful track record with 
the implementation of pay banding, pay for performance, and other human 
capital authorities that have helped to ensure that GAO remains a world 
class, professional services organization. In July 2004, the President 
signed into law the GAO Human Capital Reform Act of 2004 (Human Capital 
II), which, as you know, combines diverse initiatives that, 
collectively, should further GAO's ability to enhance our performance; 
assure our accountability; and help ensure that we can attract, retain, 
motivate, and reward a top-quality and high-performing workforce 
currently and in future years.[Footnote 27] It is our vision that these 
initiatives not only ensure a high-performing workforce at GAO, but 
also serve as guide to other agencies in their human capital 
transformation efforts.

A key provision of Human Capital II is to allow the Comptroller General 
to adjust the rates of basic pay of GAO employees on a separate basis 
from the annual adjustments authorized for employees of the executive 
branch. GAO is implementing a compensation system that places greater 
emphasis on job performance while, at a minimum, protecting the 
purchasing power of employees who are performing acceptably and are 
paid within competitive compensation ranges. Since we testified before 
your subcommittee last summer, GAO has taken steps that will enable it 
to implement the pay adjustment provision. With the help of a human 
resources consulting firm, GAO developed new market-based compensation 
pay ranges for analysts, attorneys, and specialists that is already in 
the first phase of implementation. With the new market-based pay 
system, employee compensation will now consider current salary and 
allocate individual performance-based compensation amounts between a 
merit increase (i.e., salary increase) and a performance bonus (i.e., 
cash). This year, I provided all analysts, attorneys, and specialists 
performing at the "meets expectations" level or above the across-the-
board pay adjustment applicable to the executive branch. Later this 
year, GAO plans to conduct a similar study of market-based pay for the 
remainder of GAO's workforce, who began the transition to performance-
based compensation in 2004 with the introduction of pay-banding and a 
new competency-based performance appraisal system.

In addition, I and other GAO senior executives have continued to engage 
in a broad range of outreach and consultation activities with GAO staff 
before and during the implementation of the new market-based pay 
system. For example, I met with senior executives and employee 
representatives to obtain input about a new market-based approach and 
held two televised chats to inform staff of the results of the review 
and our plans for implementation. In addition, links from the GAO 
internal home page were established that allowed employees to review a 
series of fact sheets and explanatory charts, and to access copies of 
the presentations.

Summary Observations:

The final regulations that DHS has issued represent a positive step 
towards a more strategic human capital management approach for both DHS 
and the overall government, a step we have called for in our recent 
High-Risk report. Consistent with our observations last year, DHS's 
regulations make progress towards a modern compensation system. DHS's 
overall efforts in designing and implementing its human capital system 
can be particularly instructive for future human capital reform. 
Nevertheless, regarding the implementation of the DHS system, how it is 
done, when it is done, and the basis on which it is done can make all 
the difference in whether it will be successful. That is why it is 
important to recognize that DHS still has to fill in many of the 
details on how it will implement these reforms. These details do matter 
and they need to be disclosed and analyzed in order to fully assess 
DHS's proposed reforms. We have made a number of suggestions for 
improvements the agency should consider in this process. It is equally 
important for the agency to ensure it has the necessary infrastructure 
in place to implement the system, not only an effective performance 
management system, but also the capabilities to effectively use the new 
human capital authorities and a strategic human capital planning 
process. Without this infrastructure, DHS will not succeed in its 
related reform efforts.

DHS appears to be committed to continue to involve employees, including 
unions, throughout the implementation process, another critical 
ingredient for success. Specifically, under DHS's final regulations, 
employee representatives or union officials are to have opportunities 
to participate in developing the implementing directives, as outlined 
under the "continuing collaboration" provisions; hold four membership 
seats on the Homeland Security Compensation Committee; and help in 
evaluations of the human capital system. A continued commitment to a 
two-way communication strategy that allows for ongoing feedback from 
employees, customers, and key stakeholders is central to forming the 
effective internal and external partnerships that are vital to the 
success of DHS's human capital system. Finally, to help ensure the 
quality of that involvement, sustained leadership in a position such as 
a COO/CMO would serve to elevate, integrate, and institutionalize 
responsibility for the success of DHS's human capital system and other 
key business transformation initiatives.

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

Contacts and Acknowledgments:

For further information, please contact Eileen Larence, Acting 
Director, Strategic Issues, at (202) 512-6806 or 
[Hyperlink, larencee@gao.gov]. Major contributors to this testimony 
include Michelle Bracy, K. Scott Derrick, Karin Fangman, Janice 
Latimer, Jeffrey McDermott, Lisa Shames, and Michael Volpe.

[End of section]

Appendix I: "Highlights" from Selected GAO Human Capital Reports:

GAO Highlights:

Highlights of GAO-04-479T, testimony before subcommittees of the 
Senate Committee on Governmental Affairs and the House Committee on 
Government Reform

Why GAO Did This Study:

The creation of the Department of Homeland Security (DHS) almost one 
year ago represents an historic moment for the federal government to 
fundamentally transform how the nation will protect itself from 
terrorism. DHS is continuing to transform and integrate a disparate 
group of agencies with multiple missions, values, and cultures into a 
strong and effective cabinet department. Together with this unique 
opportunity, however, also comes significant risk to the nation that 
could occur if this transformation is not implemented successfully. In 
fact, GAO designated this implementation and transformation as high 
risk in January 2003.

Congress provided DHS with significant flexibility to design a modern 
human capital management system. GAO reported in September 2003 that 
the design effort to develop the system was collaborative and 
consistent with positive elements of transformation. Last Friday, the 
Secretary of DHS and the Director of the Office of Personnel 
Management (OPM) released for public comment draft regulations for 
DHS’s new human capital system. This testimony provides preliminary 
observations on selected major provisions of the proposed system. The 
subcommittees are also releasing Human Capital: Implementing Pay for 
Performance at Selected Personnel Demonstration Projects (GAO-04-83) 
at today’s hearing. 

What GAO Found:

The proposed human capital system is designed to be aligned with the 
department’s mission requirements and is intended to protect the civil 
service rights of DHS employees. Many of the basic principles 
underlying the DHS regulations are consistent with proven approaches 
to strategic human capital management, including several approaches 
pioneered by GAO, and deserve serious consideration. However, some 
parts of the system raise questions that DHS, OPM, and Congress should 
consider.
* Pay and performance management: The proposal takes another valuable 
step towards results-oriented pay reform and modern performance 
management. For effective performance management, DHS should use 
validated core competencies as a key part of evaluating individual 
contributions to departmental results and transformation efforts.
* Adverse actions and appeals: The proposal would retain an avenue for 
employees to appeal adverse actions to an independent third party. 
However, the process to identify mandatory removal offenses must be 
collaborative and transparent. DHS needs to be cautious about defining 
specific actions requiring employee removal and learn from the 
Internal Revenue Service’s implementation of its mandatory removal 
provisions.
* Labor relations: The regulations recognize employees’ right to 
organize and bargain collectively, but reduce areas subject to 
bargaining. Continuing to involve employees in a meaningful manner is 
critical to the successful operations of the department.

Once DHS issues final regulations for the human capital system, it 
will be faced with multiple implementation challenges:
* DHS plans to implement the system using a phased approach, however, 
nearly half of DHS civilian employees are not covered by these 
regulations, including more than 50,000 Transportation Security 
Administration screeners. To help build a unified culture, DHS should 
consider moving all of its employees under a single performance 
management system framework. 
* DHS noted that it estimates that about $110 million will be needed 
to implement the new system in its first year. While adequate 
resources for program implementation are critical to program success, 
DHS is requesting a substantial amount of funding that warrants close 
scrutiny by Congress.
* The proposed regulations call for comprehensive, ongoing 
evaluations. Continued evaluation and adjustments will help to ensure 
an effective and credible human capital system.
* DHS has begun to develop a strategic workforce plan. Such a plan can 
be used as a tool for identifying core competencies for staff for 
attracting, developing, evaluating, and rewarding contributions to 
mission accomplishment.

The analysis of DHS’s effort to develop a strategic human capital 
management system can be instructive as other agencies request and 
implement new strategic human capital management authorities.

www.gao.gov/cgi-bin/getrpt?GAO-04-479T.

To view the full testimony statement, click on the link above. For 
more information, contact J. Christopher Mihm at (202) 512-6806 or 
mihmj@gao.gov.

[End of GAO-04-479T Highlights]

GAO Highlights: 

Highlights of GAO-04-790, a report to congressional requesters 

Why GAO Did This Study: 

DHS was provided with significant flexibility to design a modern human 
capital management system. Its proposed system has both precedent-
setting implications for the executive branch and far-reaching 
implications on how the department is managed. GAO reported in 
September 2003 that the effort to design the system was collaborative 
and consistent with positive elements of transformation. In February, 
March, and April 2004 we provided preliminary observations on the 
proposed human capital regulations. 

Congressional requesters asked GAO to describe the infrastructure 
necessary for strategic human capital management and to assess the 
degree to which DHS has that infrastructure in place, which includes 
an analysis of the progress DHS has made in implementing the 
recommendations from our September 2003 report. 

DHS generally agreed with the findings of our report and provided more 
current information that we incorporated. However, DHS was concerned 
about our use of results from a governmentwide survey gathered prior to 
the formation of the department. We use this data because it is the 
most current information available on the perceptions of employees 
currently in DHS and helps to illustrate the challenges facing DHS.

What GAO Found: 

To date, DHS’s actions in designing its human capital management system 
and its stated plans for future work on the system are helping to 
position the department for successful implementation. Nonetheless, 
the department is in the early stages of developing the infrastructure 
needed for implementing its new human capital management system. 

* DHS has begun strategic human capital planning efforts at the 
headquarters level since the release of the department’s overall 
strategic plan and the publication of proposed regulations for its new 
human capital management system. Strategic human capital planning 
efforts can enable DHS to remain aware of and be prepared for current 
and future needs as an organization. However, this will be more 
difficult because DHS has not yet been systematic or consistent in 
gathering relevant data on the successes or shortcomings of legacy 
component human capital approaches or current and future workforce 
challenges. Efforts are now under way to collect detailed human capital 
information and design a centralized information system so that such 
data can be gathered and reported at the departmentwide level. 

* DHS and Office of Personnel Management leaders have consistently 
underscored their personal commitment to the design process. Continued 
leadership is necessary to marshal the capabilities required for the 
successful implementation of the department’s new human capital 
management system. Sustained and committed leadership is required on 
multiple levels: securing appropriate resources for the design, 
implementation, and evaluation of the human capital management system; 
communicating with employees and their representatives about the new 
system and providing opportunities for feedback; training employees on 
the details of the new system; and continuing opportunities for 
employees and their representatives to participate in the design and 
implementation of the system. 

* In its proposed regulations, DHS outlines its intention to implement 
key safeguards. For example, the DHS performance management system must 
comply with the merit system principles and avoid prohibited personnel 
practices; provide a means for employee involvement in the design and 
implementation of the system; and overall, be fair, credible, and 
transparent. The department also plans to align individual performance 
management with organizational goals and provide for reasonableness 
reviews of performance management decisions through its Performance 
Review Boards. 

www.gao.gov/cgi-bin/getrpt?GAO-04-790.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact J. Christopher Mihm at 
(202) 512-6806 or mihmj@gao.gov.

[End of GAO-04-790 Highlights]

GAO Highlights:

Highlights of GAO-03-488, a report to congressional requesters

Why GAO Did This Study:

The federal government is in a period of profound transition and faces 
an array of challenges and opportunities to enhance performance, ensure 
accountability, and position the nation for the future. High-performing 
organizations have found that to successfully transform themselves, 
they must often fundamentally change their cultures so that they are 
more results-oriented, customer-focused, and collaborative in nature. 
To foster such cultures, these organizations recognize that an 
effective performance management system can be a strategic tool to 
drive internal change and achieve desired results.

Based on previously issued reports on public sector organizations’ 
approaches to reinforce individual accountability for results, GAO 
identified key practices that federal agencies can consider as they 
develop modern, effective, and credible performance management systems.

What GAO Found:

Public sector organizations both in the United States and abroad have 
implemented a selected, generally consistent set of key practices for 
effective performance management that collectively create a clear 
linkage—“line of sight”—between individual performance and 
organizational success. These key practices include the following:
1. Align individual performance expectations with organizational goals. 
An explicit alignment helps individuals see the connection between 
their daily activities and organizational goals.
2. Connect performance expectations to crosscutting goals. Placing an 
emphasis on collaboration, interaction, and teamwork across 
organizational boundaries helps strengthen accountability for results. 
3. Provide and routinely use performance information to track 
organizational priorities. Individuals use performance information to 
manage during the year, identify performance gaps, and pinpoint 
improvement opportunities.
4. Require follow-up actions to address organizational priorities. 
By requiring and tracking follow-up actions on performance gaps, 
organizations underscore the importance of holding individuals 
accountable for making progress on their priorities.
5. Use competencies to provide a fuller assessment of performance. 
Competencies define the skills and supporting behaviors that 
individuals need to effectively contribute to organizational results. 
6. Link pay to individual and organizational performance. Pay, 
incentive, and reward systems that link employee knowledge, skills, and 
contributions to organizational results are based on valid, reliable, 
and transparent performance management systems with adequate safeguards.
7. Make meaningful distinctions in performance. Effective performance 
management systems strive to provide candid and constructive feedback 
and the necessary objective information and documentation to reward top 
performers and deal with poor performers.
8. Involve employees and stakeholders to gain ownership of performance 
management systems. Early and direct involvement helps increase 
employees’ and stakeholders’ understanding and ownership of the system 
and belief in its fairness.
9. Maintain continuity during transitions. Because cultural 
transformations take time, performance management systems reinforce 
accountability for change management and other organizational goals.

www.gao.gov/cgi-bin/getrpt?GAO-03-488.

To view the full report, including the scope and methodology, click on 
the link above. For more information, contact J. Christopher Mihm at 
(202) 512-6806 or mihmj@gao.gov.

[End of GAO-03-488 Highlights]

GAO Highlights:

Highlights of GAO-05-69SP: 

Why GAO Convened This Forum:

There is widespread agreement that the federal government faces a range 
of challenges in the 21st century that it must confront to enhance 
performance, ensure accountability, and position the nation for the 
future. Federal agencies will need the most effective human capital 
systems to address these challenges and succeed in their transformation 
efforts during a period of likely sustained budget constraints. 

More progress in addressing human capital challenges was made in the 
last 3 years than in the last 20, and significant changes in how the 
federal workforce is managed are underway. 

On April 14, 2004, GAO and the National Commission on the Public 
Service Implementation Initiative hosted a forum with selected 
executive branch officials, key stakeholders, and other experts to 
help advance the discussion concerning how governmentwide human 
capital reform should proceed.

What Participants Said:

Forum participants discussed (1) Should there be a governmentwide 
framework for human capital reform? and (2) If yes, what should a 
governmentwide framework include? 

There was widespread recognition that a “one size fits all” approach to 
human capital management is not appropriate for the challenges and 
demands government faces. However, there was equally broad agreement 
that there should be a governmentwide framework to guide human capital 
reform built on a set of beliefs that entail fundamental principles and 
boundaries that include criteria and processes that establish the 
checks and limitations when agencies seek and implement their 
authorities. While there were divergent views among the participants, 
there was general agreement that the following served as a starting 
point for further discussion in developing a governmentwide framework 
to advance needed human capital reform.

Principles:  
* Merit principles that balance organizational mission, goals, and 
performance objectives with individual rights and responsibilities;
* Ability to organize, bargain collectively, and participate through 
labor organizations;
* Certain prohibited personnel practices;
* Guaranteed due process that is fair, fast, and final.

Criteria: 
* Demonstrated business case or readiness for use of targeted 
authorities;
* An integrated approach to results-oriented strategic planning and 
human capital planning and management;
* Adequate resources for planning, implementation, training, and 
evaluation;
* A modern, effective, credible, and integrated performance management 
system that includes adequate safeguards to ensure equity and prevent 
discrimination.

Processes: 
* Prescribing regulations in consultation or jointly with the Office 
of Personnel Management;
* Establishing appeals processes in consultation with the Merit 
Systems Protection Board;
* Involving employees and stakeholders in the design and implementation 
of new human capital systems;
* Phasing in implementation of new human capital systems;
* Committing to transparency, reporting, and evaluation;
* Establishing a communications strategy;
* Assuring adequate training;

www.gao.gov/cgi-bin/getrpt?GAO-05-69SP

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact J. Christopher Mihm at 
(202) 512-6806 or mihmj@gao.gov.

[End of GAO-05-69SP Highlights]

[End of section]

(450384):

FOOTNOTES

[1] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: 
January 2005).

[2] GAO, Human Capital: Preliminary Observations on Proposed DHS Human 
Capital Regulations, GAO-04-479T (Washington, D.C.: Feb. 25, 2004); 
Posthearing Questions Related to Proposed Department of Homeland 
Security (DHS) Human Capital Regulations, GAO-04-570R (Washington, 
D.C.: Mar. 22, 2004); and Additional Posthearing Questions Related to 
Proposed Department of Homeland Security (DHS) Human Capital 
Regulations, GAO-04-617R (Washington, D.C.: Apr. 30, 2004).

[3] GAO, Results-Oriented Cultures: Implementation Steps to Assist 
Mergers and Organizational Transformations, GAO-03-669 (Washington, 
D.C.: July 2, 2003) and Highlights of a GAO Forum: Lessons Learned for 
a Department of Homeland Security and Other Federal Agencies, GAO-03-
293SP (Washington, D.C.: Nov. 14, 2002).

[4] GAO-04-479T.

[5] GAO-04-617R.

[6] GAO, Human Capital: Opportunities to Improve Executive Agencies' 
Hiring Processes, GAO-03-450 (Washington, D.C.: May 30, 2003).

[7] GAO, Results-Oriented Cultures: Creating a Clear Linkage between 
Individual Performance and Organizational Success, GAO-03-488 
(Washington, D.C.: Mar. 14, 2003).

[8] GAO-03-488.

[9] GAO, Human Capital: Implementing Pay for Performance at Selected 
Personnel Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23, 
2004).

[10] GAO-03-488.

[11] For more information, see GAO, Human Capital: Senior Executive 
Performance Management Can Be Significantly Strengthened to Achieve 
Results, GAO-04-614 (Washington, D.C.: May 26, 2004).

[12] GAO-04-83.

[13] Section 1203 of the IRS Restructuring and Reform Act of 1998 
outlines conditions for the firing of IRS employees for any of ten acts 
of misconduct.

[14] GAO, Tax Administration: IRS and TIGTA Should Evaluate Their 
Processing of Employee Misconduct Under Section 1203, GAO-03-394 
(Washington, D.C.: Feb. 14, 2003).

[15] Employees under collective bargaining agreements can choose to 
grieve and arbitrate adverse actions other than mandatory removals 
through negotiated grievance procedures or take these actions to MSPB.

[16] GAO, Human Capital: The Role of Ombudsmen in Dispute Resolution, 
GAO-01-466 (Washington, D.C.: Apr. 13, 2001).

[17] GAO, Alternative Dispute Resolution: Employers' Experiences With 
ADR in the Workplace, GAO/GGD-97-157 (Washington D.C.: Aug. 12, 1997).

[18] National Treasury Employees Union v. Ridge, No. 1:05cv201 (D.D.C. 
filed Jan. 27, 2005).

[19] GAO, Human Capital: DHS Faces Challenges in Implementing Its New 
Personnel System, GAO-04-790 (Washington, D.C.: June 18, 2004).

[20] GAO, The Chief Operating Officer Concept and Its Potential Use as 
a Strategy to Improve Management at the Department of Homeland 
Security, GAO-04-876R (Washington, D.C.: June 28, 2004) and Highlights 
of a GAO Roundtable: The Chief Operating Officer Concept: A Potential 
Strategy To Address Federal Governance Challenges, GAO-03-192SP 
(Washington, D.C.: Oct. 4, 2002).

[21] GAO-03-669.

[22] U.S. Office of Personnel Management, Demonstration Projects and 
Alternative Personnel Systems: HR Flexibilities and Lessons Learned 
(Washington, D.C.: September 2001).

[23] GAO, Human Capital: DHS Personnel System Design Effort Provides 
for Collaboration and Employee Participation, GAO-03-1099 (Washington, 
D.C.: Sept. 30, 2003).

[24] GAO, Human Capital: Practices that Empowered and Involved 
Employees, GAO-01-1070 (Washington, D.C.: Sept. 14, 2001).

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

[26] See The National Commission on the Public Service Implementation 
Initiative and The National Academy of Public Administration, A 
Governmentwide Framework for Federal Personnel Reform: A Proposal 
(Washington, D.C.: November 2004).

[27] For more information, see Public Law 108-271, July 7, 2004, and 
GAO, GAO: Additional Human Capital Flexibilities Are Needed, GAO-03-
1024T (Washington, D.C.: July 16, 2003).