Post-Hearing Questions Related to Federal Human Capital Issues
(10-MAY-02, GAO-02-719R).
This letter answers several questions that arose from a recent
GAO testimony (GAO-02-528T) on human capital management. GAO
discusses (1) early retirement and early separation incentives,
(2) expanded management flexibilities, (3) federal financial
management, (4) hiring processes, (5) what federal managers must
do to motivate and empower their employees, and (6) what the
federal government must do to be competitive as an employer of
choice.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-719R
ACCNO: A03312
TITLE: Post-Hearing Questions Related to Federal Human Capital
Issues
DATE: 05/10/2002
SUBJECT: Personnel recruiting
Human resources utilization
Federal employee retirement programs
Internal controls
Financial management
Hiring policies
Employee incentives
Compensation
Senior Executive Service
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GAO-02-719R
GAO- 02- 719R
United States General Accounting Office Washington, DC 20548
Comptroller General of the United States
May 10, 2002 The Honorable Daniel K. Akaka
Chairman, Subcommittee on International Security, Proliferation, and Federal
Services Committee on Governmental Affairs United States Senate
The Honorable George V. Voinovich Subcommittee on International Security,
Proliferation, and Federal Services Committee on Governmental Affairs United
States Senate
Subject: Post- Hearing Questions Related to Federal Human Capital Issues
Dear Mr. Chairman and Senator Voinovich: On March 18, we testified before
your Subcommittee at a hearing on ?The Federal Workforce: Legislative
Proposals for Change.? In that testimony we (1) discussed the major
components of our new Model of Strategic Human Capital Management (GAO- 02-
373SP), (2) identified key practices that agencies need to have in place to
effectively use human capital authorities, and (3) highlighted provisions of
amendments to S. 1603, The Federal Human Capital Act of 2001.
This letter responds to your request that we provide answers to follow- up
questions relating to our March 18, 2002 testimony. Your questions, along
with our responses, follow.
Questions from Chairman Akaka
1. At the hearing on March 18, 2002, witnesses reviewed proposals in the
Substitute Manager?s Amendment and S. 1612 to offer early retirement and
early separation incentives from the federal government. As you know, over
half the federal workforce will be eligible for retirement in the next
several years. In your testimony, you recommended that Congress consider
adding employee performance as a factor in deciding who should receive these
incentives. What other factors would you recommend when offering early
retirement and early separation incentives?
GAO- 02- 719R Page 2
Early retirement and early separation incentives, in addition to other human
capital approaches, should be designed, implemented, and assessed by the
standard of how well they help agencies achieve results and pursue their
missions. In light of this, agencies should have the opportunity to consider
using these two authorities for the purposes of realigning the workforce to
meet mission needs, correcting a skills imbalance, and realigning the
workforce to meet budget constraints. Performance is just one factor
agencies should consider using when taking advantage of early retirement or
early separation incentive programs. Performance should not be used to
target certain individuals, but it can be a factor when deciding which
employees will be allowed to receive the incentives. When offering employees
an opportunity to take advantage of these incentives, we also suggest that
agencies consider factors such as skills, knowledge, and competencies; the
organizational unit or subunit in which an employee works; an employee?s
occupational series, grade, or band level, as appropriate; or the geographic
location of the employee. These criteria should be weighed in light of the
mission needs of the agency to ensure that the appropriate people are on
board to serve the public and accomplish programmatic results. Whatever
criteria are used for offering these options to employees, the approach used
should be clearly defined, well- documented, transparent, and consistently
applied. These guidelines have proved useful in our own implementation of a
Voluntary Early Retirement program.
2. One of the questions from the hearing on March 18, 2002 explored why
agencies would be more likely to use the expanded management flexibilities
offered in the Substitute Managers Amendment and S. 1612 considering the
fact that agencies currently use these flexibilities sparingly. You noted
that managers need to be more aware of how to effectively use existing
management flexibilities and better manage agency resources. OPM has
testified that it trains federal managers on the use of these flexibilities.
Why are agencies unaware of these flexibilities? What additional efforts are
needed to draw attention to existing flexibilities?
We have noted that a critical first step in strategic human capital
management is for agencies to make concerted efforts in identifying and
maximizing personnel authorities (flexibilities) already available under
existing personnel laws, rules, and regulations. 1 The U. S. Office of
Personnel Management (OPM) has published and put on its Web site Human
Resources Flexibilities and Authorities in the Federal Government, a
handbook listing personnel flexibilities available to agencies. In addition,
OPM and OMB included information on personnel authorities available to
managers as a part of training for senior managers on the President?s
Management Initiatives. This information was presented in a half day of
training on flexibilities as a part of transition training for new political
appointees. Despite these initiatives many agencies have not made extensive
use of flexibilities.
Part of the reason for this limited use of flexibilities is that some
agencies may continue to not be fully aware of the flexibilities; however
the key reason may be that agencies have not systematically assessed their
strategic human capital needs and then developed programs and initiatives to
address those needs. Using flexibilities is then part of the solution to
address an agency?s human capital challenges. For example, many supervisors
and managers cite noncompetitive pay as a major reason why it is difficult
to recruit and retain employees with critical skills. Yet very few agencies
have made more than a modest use of recruiting
1 We are currently studying agencies? use of human capital flexibilities at
the request of this subcommittee and others.
GAO- 02- 719R Page 3
bonuses and retention allowances. Agencies need to conduct a systematic
analysis to determine how best to recruit and retain the talent they need;
this analysis should then be used to determine which flexibilities, if any,
are to be used. When considering these opportunities, agencies must also
consider the competing demands confronting them, the limited resources
available, and how those demands and resources require careful balancing and
prioritization.
3. Financial transparency is an issue that was raised in GAO?s ?High Risk
Update.? According to the report, ?without good financial information . . .
government cannot make timely and informed decisions about allocating
limited resources.? Do you believe federal managers have the tools they
require to more effectively manage agency resources, including those
resources used for contracting out? If not, how can managers be expected to
use existing personnel flexibilities?
Many agencies do not have timely, accurate, and useful financial
information, including cost data, and do not have sound controls with which
to make informed decisions and ensure accountability on an ongoing basis.
Cost data is essential for budgeting, controlling cost, measuring
performance, determining cost reimbursements, setting fees and prices,
evaluating programs, and choosing between alternative actions. Also,
accurately knowing the cost for providing goods and services in- house for
comparison with private sector performance will be important in making sound
sourcing decisions and analyzing the budgetary implication of contracted
services. Although agencies have started to make progress in their efforts
to modernize their financial management systems, much work remains.
We have consistently reported that effective organizations use complete,
valid, reliable, and current data to inform decisions regarding human
capital management approaches and that they integrate investments in human
capital approaches with needs identified through strategic planning.
Routinely having timely, accurate, and useful financial management
information will enable agencies to use this information when analyzing the
budgetary implication of contracted services, when looking to fund an
administrative human capital flexibility, and when attempting to understand
the relationship between the cost and effectiveness of a particular human
capital flexibility. 2 However, other tools are available to assist agencies
in implementing available human capital flexibilities, and agencies need not
wait for detailed cost data to implement the human capital flexibilities
available under current law. When implementing these flexibilities, agencies
need to make a business case assessing the potential costs and benefits of a
particular flexibility and the degree to which it may assist in improving
agency performance. Developing a fact- based business case will be more
difficult and time- consuming in the absence of organizationwide systems
that provide sound financial data.
2 For additional information on federal contracting, see the Commercial
Activities Panel, Improving the Sourcing Decisions of Government: Final
Report (Washington, D. C.: April 30, 2002).
GAO- 02- 719R Page 4
4. The Substitute Manager?s Amendment and S. 1612 propose measures to
expedite the hiring process by allowing agencies to directly hire job
applicants for hard- to- fill positions. However, witnesses testified at the
hearing on March 18, 2002, that this would not speed up hiring and may
actually slow it down since OPM would already have a larger pool of selected
applicants. Do you believe there are instances where direct hire authority
may actually slow the hiring process?
We are studying the federal hiring process at the request of this committee.
The concern raised at the hearing appeared to be based on the assumption
that OPM retains authority over examining and rating job applicants and that
OPM retains lists of certified applicants for various positions. According
to a recent Merit Systems Protection Board (MSPB) report, OPM has delegated
virtually all responsibilities associated with the hiring process to federal
agencies. 3 The decentralization of personnel management was begun to make
these activities more timely and flexible. The same MSPB report indicates
that human resources specialists believe that the delegation of
responsibilities for the hiring process to the agencies has enabled them to
fill positions in a more timely manner, do a better job of matching hiring
needs and applicant skills, and fill jobs more cost effectively than they
could when they had to request candidate referrals from OPM.
Questions from Senator Voinovich
1. In your testimony, you discuss the importance of fostering a results-
oriented organizational culture in federal agencies and suggest that
implementing pay- forperformance to replace the current pay system, which is
based on ?the passage of time and rate of inflation.? While we need to
review the government?s compensation system, this is only one aspect of the
human capital crisis. What can we do, right now, administratively or
legislatively, to install a culture of excellence in federal agencies? What
must federal managers do to motivate and empower their employees and make
the government a more exciting place to work?
One way to embed a culture of excellence or results- orientation is to align
individual employee performance expectations with agency goals so that
individuals understand the connection between their daily activities and
their organization?s success. High- performing organizations have recognized
that a key element of a fully successful performance management system is to
create a ?line of sight? that shows how individual responsibilities can
contribute to organizational goals. As a first step, these organizations
align their top leadership?s performance expectations with organizational
goals and then cascade performance expectations to lower organizational
levels.
At the most senior level, one way to encourage accountability within an
organization is through the use of executive performance agreements. Our
work has shown that agencies have benefited from their use of results-
oriented performance agreements for political and senior career executives.
4 Although each agency developed and implemented performance agreements that
reflected its specific organizational priorities, structures, and cultures,
the performance agreements met the following characteristics. They
3 U. S. Merit Systems Protection Board, The U. S. Office of Personnel
Management in Retrospect: Achievements and Challenges after Two Decades
(Washington, D. C.: December 2001). 4 U. S. General Accounting Office,
Managing for Results: Emerging Benefits From Selected Agencies'
Use of Performance Agreements GAO- 01- 115 (Washington, D. C.: October
2000).
GAO- 02- 719R Page 5 strengthened alignment of results- oriented goals
with daily operations
fostered collaboration across organization boundaries
enhanced opportunities to discuss and routinely use performance
information to make program improvements
provided a results- oriented basis for individual accountability, and
maintained continuity of program goals during leadership transitions.
Governmentwide, agencies are to place increased emphasis on holding senior
executives accountable for organizational goals. OPM amended regulations
that change the way agencies evaluate the members of the Senior Executive
Service (SES). While agencies will need to tailor their performance
management systems to their unique organizational requirements and climates,
they nonetheless are to hold executives accountable for results; appraise
executive performance on those results balanced against other dimensions,
including customer satisfaction and employee perspective; and use those
results as the basis for performance awards and other personnel decisions.
Agencies were to implement the new policies for the SES appraisal cycles
that began in 2001.
Furthermore, leading organizations we studied create a set of mission-
related program guidelines within which managers operate, and then give
their managers extensive authority to pursue organizational goals. 5
Allowing managers to bring their judgment to bear in meeting their
responsibilities, rather than having them merely comply with rigid rules and
standards, can lead to more effective operations.
Involving frontline employees in decisionmaking, either directly or through
employee unions and organizations, as appropriate, is another key ingredient
in developing an organizational culture that motivates and empowers
employees. Employee involvement in the planning process helps to develop
agency goals and objectives that incorporate insights about operations from
a frontline perspective. Involving employees can also serve to increase
employees? understanding and acceptance of organizational goals and
objectives and improve motivation, morale, and retention. 6
Our work has shown that leading organizations commonly seek their employees?
input on a periodic basis and explicitly address and use that input to
adjust their human capital approaches. 7 The organizations collect feedback
using employee satisfaction surveys, convene focus groups or employee
advisory councils, and including employees on task forces. Moreover,
organizations we studied reported that they involved unions and incorporated
their input into proposals before making decisions. Engaging employee unions
in major changes such as redesigning work processes, changing work rules, or
developing new job descriptions can help achieve consensus on the planned
changes, avoid misunderstandings, speed implementation, and more
expeditiously resolve problems that occur.
5 U. S. General Accounting Office, Managing for Results: Experiences Abroad
Suggest Insights for Federal Management Reforms GGD- 95- 120 Washington, D.
C.: May 2, 1995). 6 U. S. General Accounting Office, Human Capital:
Practices that Empowered and Involved
Employees, GAO- 01- 1070 (Washington, D. C.: Sept. 14, 2001). 7 U. S.
General Accounting Office, Human Capital: Key Principles from Nine Private
Sector
Organizations GAO/ GGD- 00- 28 (Washington, D. C.: January 2000).
GAO- 02- 719R Page 6
2. The American workforce has been transformed over the past decade as a
result of information technology and other advancements. What must the
federal government do to be competitive as an employer of choice? For
instance, how should the federal government adapt to the fact that few new
college graduates seek a 30- year career with one employer, preferring the
flexibility to move from job to job and sector to sector without major
barriers to entry?
There are numerous steps that can be taken in the short, medium, and long
term to make the federal government an employer of choice for people within
all levels and all sectors of the labor market. Many, but not all, of these
steps can be done within current laws and regulations.
In the short term, agencies should use technology and available
administrative flexibilities to minimize the time required to hire. In
addition, a recently announced initiative of the OPM to improve the federal
hiring process is a positive step. This initiative encourages agencies to
develop clear, understandable job announcements; to provide timely and
informed responses to questions about the recruiting process; and to
regularly provide updates on the status of applications as significant
decisions are reached. Those considering employment offers with the federal
government may take offers more seriously if provided with information on
the total compensation package. Accompanied by the federal government?s
contribution for health care benefits, life insurance, and retirement, a
?low? salary offer seems more robust. Recruiters should also point out the
many family- friendly and work/ life benefits the federal government has to
offer, including flexible work schedules, on- site child care or child care
assistance, transportation benefits, and telecommuting.
In addition to focusing energy on the application process, agencies should
develop ongoing relationships with colleges and universities that entail
recruiting, general outreach, and educational opportunities. Agencies can
further enrich their potential applicant pool by creating substantive
internship opportunities that allow hiring officials the chance to observe
student performance and expose students to the benefits of working for the
federal government, and the impact they can make as federal employees.
Once these initiatives are in place, agencies and other interested parties
can turn their attention to activities that will take slightly longer to
accomplish in making the federal government an employer of choice. For
example, as agencies develop policies for providing student loan repayment
assistance, they will need to budget their resources strategically and make
a business case to OMB and Congress for additional funding based on a fact-
based analysis of their needs and the constraints under which they currently
operate.
In the long term, all concerned parties will need to work together on a
number of efforts to make the federal government an employer of choice.
Momentum is already building to address the challenges posed by a
classification and pay system that many view as antiquated. 8 As debate on
comprehensive civil service reform moves forward, consideration must be
given to having a greater share of an employee?s salary dependent on
knowledge, skills, and performance, rather than the passage of time and the
rate of inflation, as is often that case today. This shift would communicate
to potential applicants that the federal
8 For example, see U. S. Office of Personnel Management, A Fresh Start for
Federal Pay: The Case for Modernization (Washington, D. C.: April 2002).
GAO- 02- 719R Page 7
government values, recognizes, and rewards high performance and the
accomplishment of results. However, numerous studies report that money is
not the sole motivating factor that leads someone to choose to work for the
federal government specifically or the public sector generally. We must
address the challenge of overcoming the legacy of more than two decades of
bureaucrat bashing by emphasizing the essential and valuable role of public
servants and the positive role the federal government plays in our day- to-
day lives.
If you have any questions concerning this letter, please contact J.
Christopher Mihm, Director, Strategic Issues, at mihmj@ gao. gov.
David M. Walker Comptroller General of the United States
(450125)
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