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entitled 'Issues Related to Poor Performers in the Federal Workplace' 
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June 29, 2005: 

The Honorable Tom Davis: 
Chairman: 
Committee on Government Reform: 
House of Representatives: 

The Honorable Jon C. Porter: 
Chairman: 
Subcommittee on the Federal Workforce and Agency Organization: 
Committee on Government Reform: 
House of Representatives: 

Subject: Issues Related to Poor Performers in the Federal Workplace: 

Many factors contribute to an organization's success in accomplishing 
its mission, but none more than the effective management and 
utilization of its greatest asset--its employees. A high-performing 
organization relies on a dynamic workforce with the requisite talents, 
multidisciplinary knowledge, and up-to-date skills to ensure that it is 
equipped to accomplish its mission and achieve its goals. An effective 
performance management system can help an organization manage the day- 
to-day activities that allow employees to perform at their highest 
levels by creating a clear linkage--"line of sight"--between individual 
performance and organizational success. 

In the current environment where federal agencies are facing the 
challenges of transforming themselves, some agencies have begun to 
create results-oriented organizational cultures where unit and 
individual performance is linked to organizational goals. Effective 
performance management systems can help create such cultures by 
providing objective information to allow managers to make meaningful 
distinctions in performance in order to reward top performers and deal 
with poor performers. For example, final regulations establishing the 
Department of Homeland Security's (DHS) new human capital system 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. 
Although poor performance is not defined by statute, title 5 of the 
United States Code characterizes unacceptable performance as 
"performance of an employee which fails to meet established performance 
standards in one or more critical elements of such employee's 
position."[Footnote 1] The DHS and the proposed Department of Defense 
(DOD) systems deny pay increases to employees with unacceptable 
performance ratings.[Footnote 2]

The exact number of poor performers in the federal government is 
unknown; however, it is generally agreed that even a small number of 
poor performers can have a negative impact on the work environment. In 
this regard, general agreement exists that poor performance should be 
addressed earlier rather than later, with the objective of improving 
the performance. Surveys of supervisors and employees have identified a 
number of impediments to taking action to deal with poor performance. 

Based on your request for information on issues relating to the 
management of poor performers in the federal government, our objectives 
were to: 

1) Synthesize and update currently available information related to 
the: 

* magnitude of the poor performer issue in the federal government;

* tools and approaches available to agencies, including DHS and DOD, 
for addressing poor performance; and: 

* impediments identified to dealing with poor performers. 

2) Present key factors for addressing poor performance, based on past 
work and leading practices. 

To accomplish these objectives, we reviewed our prior work as well as 
that of the Merit Systems Protection Board (MSPB) and the Office of 
Personnel Management (OPM); data on performance appraisal ratings from 
OPM's Central Personnel Data File (CPDF); and recently issued DHS's 
final and DOD's proposed regulations establishing their personnel and 
performance management systems. We performed our work from January 
through March 2005 in accordance with generally accepted government 
auditing standards. 

We provided detailed briefings on the results of our work to the 
requesters' staffs.[Footnote 3] The briefing slides are included in the 
enclosure. The purpose of this letter is to provide the slides to you 
along with additional information, as requested, on authority that 
federal agencies have to extend the duration of the probationary period 
for new employees. 

In brief, we reported that studies provide varying indicators of the 
magnitude of poor performance in the federal workforce. For example, 
while a 1999 OPM survey of supervisors estimated that poor performers 
constituted about 3.7 percent of the federal workforce, CPDF data 
indicate that of those employees rated in fiscal year 2003, 0.3 percent 
received an unacceptable performance rating. In MSPB's 2000 survey, 
employees perceived that 14.3 percent of their coworkers were 
performing below reasonably expected levels. Some of the variance in 
the survey results can be attributed to the populations surveyed and 
the questions posed. 

Various tools and approaches are available to deal with performance, 
including poor performance. We provide several examples, which are not 
intended to be representative of all approaches available to agencies. 
Foremost, as we have stated, establishing an effective performance 
management system is important in providing candid and constructive 
feedback to help individuals maximize their performance. Effective use 
of probationary periods to rigorously review employee performance is 
also important since the probationary period may be viewed as the final 
opportunity to evaluate performance before permanent appointment. 
Furthermore, some agencies have used other approaches, unrelated to 
performance management or probationary employment, to address poor 
performance. Such approaches include denying pay increases to employees 
with unacceptable performance ratings, streamlining the appeals 
processes, and increasing the use of alternative dispute resolution to 
address workplace disputes that involve disciplinary or adverse 
actions. 

In response to the question about the authority available to agencies 
to extend the probationary period, we note that section 3321 of title 5 
of the United States Code does not contain any specified time periods. 
However, the critical feature of dealing with poor performance during 
the probationary period is the limitation on appeal rights, and under 
chapter 75 of title 5, full appeal rights are extended to any employee 
(including a probationary employee) who has completed more than 1 year 
of continuous service.[Footnote 4] Therefore, any decision to allow 
agencies to extend probationary periods beyond 1 year and to include 
the limitation on appeal rights would require legislative action. For 
example, both DHS and DOD, which are exempt from chapter 75 of title 5, 
have provided their managers with the flexibility to go beyond the 
standard 1-year period of probation. We have reported that other 
agencies have been granted the authority to extend the probationary 
period. For example, demonstration projects at the Department of 
Commerce and the National Institute of Standards and Technology 
included probationary periods of up to 3 years for specific occupation 
groups.[Footnote 5]

Various studies, reports, and surveys of federal supervisors and 
employees we reviewed have identified various impediments to dealing 
with poor performance, including issues related to (1) time and 
complexity of the processes; (2) lack of training in performance 
management; and (3) communication, including the dislike of 
confrontation. Results of OPM's 2004 Federal Human Capital Survey, 
published subsequent to the completion of our audit work, support the 
view that impediments still exist.[Footnote 6] Responding to the 
statement: "In my work unit, steps are taken to deal with a poor 
performer who cannot or will not improve," 27 percent of respondents 
agreed or strongly agreed, while 41 percent disagreed or strongly 
disagreed.[Footnote 7]

Looking forward, it will be important to carefully evaluate the 
implementation of DHS's and DOD's personnel and performance management 
systems to determine their effectiveness and potential application 
governmentwide, including the tools and approaches that are aimed at 
addressing poor performance. However, this will take time. In the 
interim, it will be important to continue to institute performance- 
based cultures and provide adequate training and resources on 
performance management. 

We are sending copies of this report to the Director, Office of 
Personnel Management; the Chairman, Merit Systems Protection Board; and 
other interested parties. Copies will also be made available to others 
on request. Should you or your staff have any questions concerning this 
report, please contact me on 202-512-9490 or by e-mail at 
stalcupg@gao.gov. Marianne Anderson, Karin Fangman, Anthony Fernandez, 
Anthony Lofaro, Belva Martin, and Gregory Wilmoth were key contributors 
to this report. 

Signed by: 

George H. Stalcup: 
Director, Strategic Issues: 

Enclosure: Enclosure: Poor Performers in the Federal Workplace: 

Briefing for the House Committee on Government Reform: 
June 21, 2005: 

Enclosure: 

Contents: 

* Objectives:
* Scope and Methodology:
* Magnitude of the Poor Performer Issue:
* Tools and Approaches Available for Addressing Poor Performance:
* Impediments to Dealing with Poor Performance:
* Key Factors for Addressing Poor Performance: 
* Appendix: 

Objectives: 

Based on a request for information and a contemporary perspective on 
issues related to management of poor performers in the federal 
government, our specific objectives were as follows: 

Synthesize and update information related to the: 

* magnitude of the poor performer issue;

* tools and approaches for addressing poor performance, including new 
authorities provided to the Department of Homeland Security (DHS) and 
the Department of Defense (DOD); and: 

* impediments to dealing with poor performance. 

Present key factors for addressing poor performance, based on past work 
and leading practices. 

Scope and Methodology: 

To accomplish our objectives, we reviewed the following: 

* prior work of government organizations with expertise in federal 
workforce issues and performance management, including GAO, the Merit 
Systems Protection Board (MSPB), and the Office of Personnel Management 
(OPM);

* performance management data from OPM's Central Personnel Data File 
(CPDF);

* recently issued DHS final and DOD proposed regulations establishing 
their personnel and performance management systems; and: 

* data on performance-related initiatives undertaken by other agencies, 
for example, recent pay-for-performance demonstration projects. 

From these sources, we have selected illustrative examples of tools and 
approaches government agencies use (or plan to use) to deal with poor 
performance. These examples are not representative of all tools and 
approaches available to agencies. 

We performed our work in Washington, D.C., from January through March 
2005 in accordance with generally accepted government auditing 
standards. 

Magnitude of the Poor Performer Issue: 

What is Poor Performance?

Although "poor performance" is not defined by statute, Title 5 of the 
United States Code characterizes unacceptable performance as 
"performance of an employee which fails to meet established performance 
standards in one or more critical elements of such employee's 
position."[NOTE 1]

In a 1999 report, OPM characterized poor performers as "employees with 
whom you are seriously disappointed. You have little confidence that 
they will do their jobs right. You often have to redo their work, or 
you may have had to severely modify their assignments to give them only 
work that they can do, which is much less than you would otherwise want 
them to do. They are just not pulling their weight."[NOTE 2]

Poor Performance Distinguished from Misconduct: 

According to OPM, poor performance and misconduct are often 
interrelated; nevertheless, it is important to recognize the difference 
between the two. OPM describes misconduct as a failure to follow a 
workplace rule (e.g., tardiness and absenteeism) and poor performance 
as the failure of an employee to do his or her job at an acceptable 
level.[NOTE 3]

Scope of Issue: 

Data on employee performance appraisal ratings, as well as studies and 
surveys of federal supervisors, provide varying estimates of the 
magnitude of poor performance in the federal workforce. 

Data from the CPDF indicate that a very small percentage of employees 
were rated unacceptable.[NOTE 4]

* CPDF data indicate that of those federal employees rated in fiscal 
year 2003, 0.3 percent received an unacceptable performance rating 
while approximately 99.7 percent received a rating of acceptable or 
higher (includes ratings of acceptable, fully successful, exceeds 
expectations, and outstanding).[NOTE 5]

Studies and surveys of supervisors and employees, in comparison to CPDF 
data, provide higher estimates of those whose performance is poor or 
below reasonably expected levels. 

* A January 1999 OPM survey of supervisors estimated that poor 
performers constitute 3.7 percent of the federal workforce.[NOTE 6]

* Employees participating in the MSPB 2000 survey perceived that 14.3 
percent of their coworkers were performing below reasonably expected 
levels.[NOTE 7]

MSPB survey results found that employees generally felt that their work 
units were more productive in cases when no coworkers in their unit 
were identified as poor performers. Moreover, studies suggest that even 
a small number of poor performers can have a negative effect on a work 
environment.[NOTE 8]

Tools and Approaches Available for Addressing Poor Performance: 

There are a number of tools and approaches available to address 
performance, including poor performance, within a merit-based system 
that contains appropriate safeguards. 

* An effective performance management system creates a clear linkage- 
"line of sight" -between individual performance and organizational 
success[NOTE 9] in a number of ways, including: 

- providing adequate training on the performance management system, 
- using core competencies to reinforce organizational objectives,
- addressing performance on an ongoing basis, and 
- ensuring that processes are transparent. 

A probationary period provides managers with a provisional period to 
rigorously review employee performance. 

Other tools may apply to circumstances that cannot be resolved using 
performance management, probationary employment, or both: 

- eliminating opportunity period,
- denying pay increases to employees with unacceptable performance, 
- streamlining appeals processes to minimize delays, and:
- increasing use of Alternative Dispute Resolution (ADR). 

On the next five slides, we provide examples of each of these tools and 
approaches to illustrate how some agencies have used or propose to use 
them. As requested, we have included a number of examples of the new 
authorities provided to DHS and DOD. 

Tool - Performance management system: 

Approach: Providing adequate training to managers and supervisors on 
the performance management system: 

Example: * DHS emphasizes training,[NOTE 10] including ensuring that 
managers and supervisors understand how to establish and communicate 
performance expectations and assess employee performance. 

Approach: Using core competencies to reinforce organizational 
objectives: 

Example: 
* DHS allows, but does not require, the development of core 
competencies.[NOTE 11] 

* The Civilian Acquisition Workforce Personnel and Naval Research 
Laboratory demonstration projects[NOTE 12] use core competencies for 
all positions. For example, the Civilian Acquisition Workforce 
Personnel demonstration project uses core competencies such as customer 
relations and problem solving. 

Approach: Addressing performance on an ongoing basis through regular 
feedback and mentoring: 

Example: 
* The new DHS and the proposed DOD human capital systems require that 
supervisors provide timely periodic feedback to employees, including 
one or more interim performance reviews during each appraisal 
period.[NOTE 13]

Approach: Ensuring that processes are transparent to provide fairness 
in the performance management system: 

Example: Demonstration projects at the Naval Sea Systems Command 
Warfare Center's (NAVSEA) Newport division and the National Institute 
of Standards and Technology (NIST) publish aggregated information on 
internal Web sites about the performance management process, such as 
performance ratings and average pay increase amounts.[NOTE 14]

Tool - Probationary period. 

Approach: Using a probationary period to rigorously review employee 
performance[NOTE 15]

Example: 
* As part of its new human capital system, DHS includes an initial 
service period, similar to a probationary period, of up to 2 years for 
designated positions in order for employees to demonstrate appropriate 
competencies.[NOTE 16]

* Demonstration projects at NIST and the Department of Commerce gained 
authority to establish probationary periods of up to 3 years for 
specific occupation groups.[NOTE 17]

Other: 

Approach: Eliminating the opportunity period to streamline processes to 
deal with unacceptable performance: 

Example: 
* DHS and proposed DOD regulations provide supervisors the option of 
not using an opportunity period before taking an adverse action.[NOTE 
18]

Approach: Denying pay increases to employees with unacceptable 
performance: 

Example: 
* DHS and proposed DOD systems deny pay increases to employees with 
unacceptable performance ratings.[NOTE 19]

* The demonstration project at NAVSEA-Newport has the authority to deny 
a pay increases to employees rated unacceptable.[NOTE 20]

Approach: Streamlining appeals processes to minimize delays in 
processing appeals, while ensuring due process protections: 

Example: 
* New DHS regulations shorten time allocated for an employee to respond 
to adverse action and provide an accelerated MSPB adjudication 
process.[NOTE 21]

Approach: Increasing use of ADR to make the redress process less 
adversarial and time-consuming: 

Example: 
* New DHS and proposed DOD regulations continue to support the use of 
ADR, including use of ombudsmen as an informal alternative for 
addressing conflicts.[NOTE 22]

Impediments to Dealing with Poor Performance: 

Recent reports, studies, and surveys of federal supervisors and 
employees[NOTE 23] identify elements of the performance management 
process and the appeals process that can act as impediments to dealing 
with poor performance. 

These sources often mention the following issues when discussing 
impediments to dealing with poor performance: 

* time involved and the complexity of the processes;

* lack of training in performance management; and: 

* communication issues, including dislike of confrontation. 

MSPB surveys and reports include the following selected examples of 
impediments to dealing with poor performance: [NOTE 24]: 

Performance Management Process: 

* Supervisors may find processes to document performance deficiencies 
and take corrective action,[NOTE 25] such as developing a Performance 
Improvement Plan (PIP), time-consuming and complex. 

* Supervisors may lack confidence in the performance management system 
for a number of reasons, such as perceiving that upper management may 
not support them in taking adverse actions. 

* Supervisors, although they may have strong technical skills, may lack 
experience and training in performance management, as well as an 
understanding of the procedures for taking corrective actions against 
poor performers. 

MSPB reported that 74 percent of supervisors linked problems in dealing 
with poor performers to a lack of confidence in the performance 
management system. 

MSPB and OPM surveys and reports include the following selected 
examples of impediments to dealing with poor performance: [NOTE 27]: 

Performance Management Process: 

* Ongoing communication between supervisors and employees concerning 
job expectations and performance was lacking. 

* Dislike of confrontation may deter supervisors from taking steps to 
address performance issues. 

* Fear of creating a negative work environment may make supervisors 
reluctant to address poor performers. 

* Sufficient time to determine whether probationary employee should be 
retained was not available. 

MSPB found that 40 percent of supervisors said that supervising an 
employee during an improvement period was "very difficult." [NOTE 28]

MSPB surveys and reports include the following selected examples of 
impediments to dealing with poor performance:[NOTE 29]

Appeals Process: 

* Supervisors may be hesitant to take action to address employee 
performance due to complicated and time-consuming appeals processes, 
lack of adequate support from human resources personnel and management, 
or both.[NOTE 30]

* Supervisors may fear that taking an action will result in an employee 
filing an Equal Employment Opportunity complaint. 

MSPB reported that 39 percent of supervisors identified an employee 
filing a discrimination complaint as a reason for their experiencing 
difficulty in dealing with a performance problem.[NOTE 31]

Key Factors for Addressing Poor Performance: 

DOD and DHS have recently been given flexibility in establishing their 
own human resources management systems. It will be important to 
carefully evaluate the implementation of changes to the DHS and DOD 
personnel and performance management systems to determine their 
effectiveness and potential application governmentwide, including the 
approaches that address poor performance. 

Additionally, based on past work and leading practices of GAO, OPM, and 
MSPB, several key factors could help agencies manage performance, 
specifically dealing effectively with poor performance. 

1. Instituting a modern, effective, and credible performance management 
system, with appropriate safeguards,

* provide a line of sight between individual performance and 
organizational success,

* ensure that processes are well understood and transparent, and: 

* hold managers accountable by measuring whether they are using the 
tools and approaches available to address poor performance. 

2. Addressing poor performance and resolving redress matters as early 
as possible, 
* conduct a rigorous review of probationary employees' performance, 
* provide performance-related feedback on a continual basis, and 
* emphasize use of ADR. 

3. Incorporating adequate training and resources on performance 
management,

* use "just-in-time" training on techniques for addressing poor 
performance and resolving appeals, and: 

* ensure that supervisors have adequate support from upper-level 
management and human capital staff in taking action to deal with poor 
performance. 

Appendix: 

Formal Processes for Dealing with Poor Performers: 
Avenues of Redress for Employees Facing Adverse Action: 
Additional Sources of Information:
* MSPB Reports and Articles and OPM Information; 
* GAO Reports and Testimonies; 
* GAO Highlights; 

Formal Processes for Dealing with Poor Performers: 

Under chapter 43 of title 5 of the United States Code, supervisors, in 
order to remove or reduce in grade a nonprobationary employee for 
unacceptable performance, must provide: 

* an opportunity to improve (e.g., PIP),
* a 30-day advance notice of proposed action, 
* the opportunity to respond, and:
* a written decision. 

Agency actions under chapter 43 must be supported by substantial 
evidence. 

Under chapter 75 of title 5 of the United States Code, supervisors may 
also remove, reduce in grade, or take another adverse action[NOTE 32] 
against a nonprobationary employee for performance or conduct reasons 
"for such cause as will promote the efficiency of the service." Under 
this process, supervisors must provide: 

* a 30-day advance notice of proposed action, 
* the opportunity to respond, and:
* a written decision. 

Agency actions under chapter 75 must be supported by a preponderance of 
the evidence.[NOTE 33]

Avenues of Redress for Employees Facing Adverse Actions: 

Employees may: 

* Appeal action to MSPB.[NOTE 34]

* File a discrimination complaint with their agencies, which provides a 
right to a hearing before an administrative judge, an appeal of the 
decision to the Equal Employment Opportunity Commission, and a full 
review in federal district court. 

* File a grievance. 

Additional Sources of Information: 

MSPB Reports and Articles: 

* Removing Poor Performers in the Federal Service (Washington, D.C.: 
September 1995). 

* Federal Supervisors and Strategic Human Resources Management 
(Washington, D.C.: June 1998). 

* What's on the Minds of Federal Human Capital Stakeholders 
(Washington, D.C.: May 2004). 

* "Drawing Distinctions in Performance and Rewards," Issues of MERIT, 
(Washington, D.C.: September 2004). 

* "Lessons Learned on Removing Poor Performers," Issues of MERIT, 
(Washington, D.C.: Summer 2004). (See 
http://www.mspb.gov/studies/studies_archive.html.)

OPM information: 

* Addressing and Resolving Poor Performance, An Interactive Tool for 
Supervisors (Washington, D.C.: January 1998). (CD format.)

GAO Reports and Testimonies: 

* Federal Employee Redress: An Opportunity for Reform. GAO/T-GGD-96-42. 
Washington, D.C.: November 29, 1995. 

* Performance Management. How Well is the Government Dealing with Poor 
Performers. GAO/GGD-91-7. Washington, D.C.: October 2, 1990. 

NOTES: 

[1] 5 U.S.C. § 4301(3). See also, 5 C.F.R. § 432.103(h).

[2] OPM, Office of Merit Systems Oversight and Effectiveness, Report of 
a Special Study, Poor Performers in Government: A Quest for the True 
Story (Washington, D.C.: January 1999).

[3] OPM, Resource Center for Addressing and Resolving Poor Performance 
(Washington, D.C.: OPM) http://www.opm.gov/er/poor/understanding.asp 
(downloaded Feb. 25, 2005).

[4] CPDF information from OPM, as of September 30, 2003. These data are 
the most recent available. 

[5] About 21 percent of employees were not rated in fiscal year 2003.

[6] OPM (1999). OPM reported a 95 percent confidence level that the 
percentage of poor performers is between 2.8 and 4.6 percent. 

[7,8] MSPB, Office of Policy and Evaluation, The Federal Workforce for 
the 21st Century Results of the Merit Principles Survey 2000 
(Washington, D.C.: September 2003). Fiscal year 2000 MSPB survey 
results are the most recent available.

[9] See GAO, Results-Oriented Cultures: Creating a Clear Linkage 
between Individual Performance and Organizational Success, GAO-03-488 
(Washington, D.C.: Mar. 14, 2003). In this report, we identify nine 
performance management practices for federal agencies to develop 
modern, effective, and credible performance management systems. See 
appendix for the highlights page of this report.

[10] 5 C.F.R. § 9701.401(b)(5). The recent regulatory changes to DHS's 
personnel management system have not been fully implemented.

[11] 5 C.F.R. § 9701.406(c)(4). The appendix includes the highlights 
page for GAO-05-320T, which includes observations on the DHS 
regulations.

[12] GAO, Human Capita: Implementing Pay for Performance at highlights 
Personnel Demonstration Projects, GAO-04-83 (Washington, DC: Jan. 23, 
2004)

[13] 5 C.F.R. § 9701.407; proposed 5 C.F.R. § 9901.407. 

[14] GAO-04-83.

[15] MSPB also recommends providing agencies with the flexibility to 
establish the length of the probationary period. See MSPB, Office of 
Policy and Evaluation, Making the Public Service Work: Recommendations 
for Change (Washington, DC: Sept. 3, 2002).

[16] DHS regulations treat removal during an initial service period the 
same as removal during a probationary period. 5 C.F.R. § 9701.605. 

[17] GAO-04-83.

[18] 5 C.F.R. 1 9701.408(b)(1); proposed 5 C.F.R. § 9901.408(b)(1).

[19] 5 C.F.R. 9701.323 and & 701.335; proposed 5 C.F.R. § 1.323 and § 
9901.334.

[20] GAO-04-83. Note: While Newport had the authority to deny pay 
increases under these circumstances, no employees were actually rated 
unacceptable during the demonstration project.

[21] 5 C.F.R. §§ 9701.609-9701.611, 5 C.F.R. § 9701.706, and 5 C.F.R. § 
9701.707. 

[22] 5 C.F.R. § 9701.705; proposed 5 C.F.R. § 9901.806.

[23] MSPB (1999, 2002, 2003); OPM (1999).

[24] MSPB (2003).

[25] See appendix, slide 22, which outlines formal processes for 
dealing with poor performers. 

[26] See footnote 24.

[27] MSPB (1999, 2002, 2003); OPM (1999). 

[28] MSPB (2003).

[29] MSPB (Results of 2000 Merit Principles Survey).

[30] See appendix, slide 23, which lists the avenues of redress for 
employees facing adverse actions. 

[31] See footnote 29.

[32] Other adverse actions under this formal process include suspension 
for more than 14 days, reduction in pay, or a furlough of 30 days or 
less. 

[33] The evidence standard for adverse actions is lower in chapter 43, 
but managers often opt to use chapter 75 because the process does not 
require use of PIPS.

[34] Probationary employees may appeal their removals to MSPB under 
only limited circumstances, including allegations of discrimination on 
the basis of marital status or political affiliation. 5 C.F.R. § 
315.806.

[End of slide presentation]

GAO Highlights: 

Highlights from these GAO reports are included at the end of this 
appendix: 

Results-Oriented Cultures: Creating a Clear Linkage between Individual 
Performance and Organizational Success. GAO-03-488. Washington, D.C.: 
March 14, 2003. 

Human Capital. Implementing Pay for Performance at Selected Personnel 
Demonstration Projects. GAO-04-83. Washington, D.C.: January 23, 2004. 

Human Capital. Preliminary Observations on Final Department of Homeland 
Security Human Capital Regulations. GAO-05-320T. Washington, D.C.: 
February 10, 2005. 

Human Capital. Preliminary Observations on Proposed DOD National 
Security Personnel System Regulations. GAO-05-432T. Washington, D.C.: 
March 15, 2005. 

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 Highlights] 

GAO Highlights: 

Highlights of GAO-04-83, a report to congressional requesters 

Why GAO Did This Study: 

There is a growing understanding that the federal government needs to 
fundamentally rethink its current approach to pay and to better link 
pay to individual and organizational performance. Federal agencies 
have been experimenting with pay for performance through the Office of 
Personnel Management’s (OPM) personnel demonstration projects. 

GAO identified the approaches that selected personnel demonstration 
projects have taken to implement their pay for performance systems. 
These projects include: the Navy Demonstration Project at China Lake 
(China Lake), the National Institute of Standards and Technology 
(NIST), the Department of Commerce (DOC), the Naval Research 
Laboratory (NRL), the Naval Sea Systems Command Warfare Centers 
(NAVSEA) at Dahlgren and Newport, and the Civilian Acquisition 
Workforce Personnel Demonstration Project (AcqDemo). We selected these 
demonstration projects based on factors such as status of the project 
and makeup of employee groups covered. 

We provided drafts of this report to officials in the Department of 
Defense (DOD) and DOC for their review and comment. DOD provided 
written comments concurring with our report. DOC provided minor 
technical clarifications and updated information. We provided a draft 
of the report to the Director of OPM for her information. 

What GAO Found: 

The demonstration projects took a variety of approaches to designing 
and implementing their pay for performance systems to meet the unique 
needs of their cultures and organizational structures, as shown in the 
table below. 

Demonstration Project Approaches to Implementing Pay for Performance: 

Using competencies to evaluate employee performance: 

High-performing organizations use validated core competencies as a key 
part of evaluating individual contributions to organizational results. 
To this end, AcqDemo and NRL use core competencies for all positions. 
Other demonstration projects, such as NIST, DOC, and China Lake, use 
competencies based on the individual employee’s position. 

Translating employee performance ratings into pay increases and 
awards: 

Some projects, such as China Lake and NAVSEA’s Newport division, 
established predetermined pay increases, awards, or both depending on 
a given performance rating, while others, such as DOC and NIST, 
delegated the flexibility to individual pay pools to determine how 
ratings would translate into performance pay increases, awards, or 
both. The demonstration projects made some distinctions among 
employees’ performance. 

Considering current salary in making performance-based pay decisions: 

Several of the demonstration projects, such as AcqDemo and NRL, 
consider an employee’s current salary when making performance pay 
increases and award decisions to make a better match between an 
employee’s compensation and contribution to the organization. 

Managing costs of the pay for performance system: 

According to officials, salaries, training, and automation and data 
systems were the major cost drivers of implementing their pay for 
performance systems. The demonstration projects used a number of 
approaches to manage the costs. 

Providing information to employees about the results of performance 
appraisal and pay decisions: 

To ensure fairness and safeguard against abuse, performance-based pay 
programs should have adequate safeguards, including reasonable 
transparency in connection with the results of the performance 
management process. To this end, several of the demonstration projects 
publish information, such as the average performance rating, 
performance pay increase, and award. 

Source: GAO. 

[End of table]

GAO strongly supports the need to expand pay for performance 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. High-performing organizations continuously review and 
revise their performance management systems. These demonstration 
projects show an understanding that how to better link pay to 
performance is very much a work in progress at the federal level. 
Additional work is needed to strengthen efforts to ensure that 
performance management systems are tools to help them manage on a day-
to-day basis. In particular, there are opportunities to use 
organizationwide competencies to evaluate employee performance that 
reinforce behaviors and actions that support the organization's 
mission, translate employee performance so that managers make 
meaningful distinctions between top and poor performers with objective 
and fact-based information, and provide information to employees about 
the results of the performance appraisals and pay decisions to ensure 
reasonable transparency and appropriate accountability mechanisms are 
in place. 

www.gao.gov/cgi-bin/getrpt?GAO-04-83. 

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 Highlights] 

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 Highlights]

GAO Highlights: 

Highlights of GAO-05-432T, a testimony to 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: 

The Department of Defense's (DOD) new human resources management 
system--the National Security Personnel System (NSPS)--will have far-
reaching implications for the management of the department and for 
civil service reform across the federal government. The National 
Defense Authorization Act for Fiscal Year 2004 gave DOD significant 
authorities to redesign the rules, regulations, and processes that 
govern the way that more than 700,000 defense civilian employees are 
hired, compensated, promoted, and disciplined. In addition, NSPS could 
serve as a model for governmentwide transformation in human capital 
management. However, if not properly designed and effectively 
implemented, it could severely impede progress toward a more 
performance-and results-based system for the federal government as a 
whole. 

On February 14, 2005, the Secretary of Defense and Acting Director of 
the Office of Personnel Management (OPM) released for public comment 
the proposed NSPS regulations. This testimony (1) provides GAO's 
preliminary observations on selected provisions of the proposed 
regulations, (2) discusses the challenges DOD faces in implementing the 
new system, and (3) suggests a governmentwide framework to advance 
human capital reform. 

What GAO Found: 

Given DOD's massive size and its geographically and culturally diverse 
workforce, NSPS represents a huge undertaking for DOD. DOD's initial 
process to design NSPS was problematic; however, after a strategic 
reassessment, DOD adjusted its approach to reflect a more cautious, 
deliberate process that involved more stakeholders, including OPM. 

Many of the principles underlying the proposed NSPS regulations are 
generally consistent with proven approaches to strategic human capital 
management. For instance, the proposed regulations provide for (1) 
elements of a flexible and contemporary human resources management 
system--such as pay bands and pay for performance; (2) DOD to rightsize 
its workforce when implementing reduction-in-force orders by giving 
greater priority to employee performance in its retention decisions; 
and (3) continuing collaboration with employee representatives. (It 
should be noted that 10 federal labor unions have filed suit alleging 
that DOD failed to abide by the statutory requirements to include 
employee representatives in the development of DOD's new labor 
relations system authorized as part of NSPS.)

GAO has three primary areas of concern: the proposed regulations do not 
(1) define the details of the implementation of the system, including 
such issues as adequate safeguards to help ensure fairness and guard 
against abuse; (2) require, as GAO believes they should, the use of 
core competencies to communicate to employees what is expected of them 
on the job; and (3) identify a process for the continuing involvement 
of employees in the planning, development, and implementation of NSPS. 

Going forward, GAO believes that (1) the development of the position of 
Deputy Secretary of Defense for Management, who would act as DOD's 
Chief Management Officer, is essential to elevate, integrate, and 
institutionalize responsibility for the success of DOD's overall 
business transformation efforts, including its new human resources 
management system; (2) DOD would benefit if it develops a comprehensive 
communications strategy that provides for ongoing, meaningful two-way 
communication that creates shared expectations among employees, 
employee representatives, and stakeholders; and (3) DOD must ensure 
that it has the institutional infrastructure in place to make effective 
use of its new authorities before they are operationalized. 

GAO strongly supports the concept of modernizing federal human capital 
policies, including providing reasonable flexibility. There is general 
recognition that the federal government needs a framework to guide 
human capital reform. Such a framework would consist of a set of 
values, principles, processes, and safeguards that would provide 
consistency across the federal government but be adaptable to agencies' 
diverse missions, cultures, and workforces. 

www.gao.gov/cgi-bin/getrpt?GAO-05-432T. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Derek B. Stewart at (202) 
512-5559 or stewartd@gao.gov. 

[End of Highlights]

[End of section]

FOOTNOTES

[1] 5 U.S.C. § 4301(3). See also 5 C.F.R. § 432.103(h). 

[2] 5 C.F.R. § 9701.323 and § 9701.335; proposed 5 C.F.R. § 9901.323 
and § 9901.334. 

[3] On May 26, 2005, and on June 21, 2005, we briefed the requesters' 
staffs. 

[4] 5 U.S.C. § 7511 (a)(1)(A). See McCormick v. Department of the Air 
Force, 307 F.3d 1339 (Fed. Cir. 2002). 

[5] Chapter 47 of title 5 permits agencies to undertake demonstration 
projects in order to determine whether specified changes in personnel 
management policies or procedures could result in improved personnel 
management. For more information on the demonstration projects, see 
Human Capital: Implementing Pay for Performance at Selected 
Demonstration Projects, GAO-04-83 (Washington, D.C.: Jan. 23, 2004). 

[6] Office of Personnel Management, What Do Federal Employees Say 
(Washington, D.C.: May 2005). The Federal Human Capital Survey is a 
tool that measures employees' perceptions of whether, and to what 
extent, conditions characterizing successful organizations are present 
in their agencies. 

[7] By comparison, in OPM's first survey in 2002, 25 percent agreed or 
strongly agreed that steps were taken to deal with poor performers, 
while 46 percent disagreed or strongly disagreed.