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entitled 'Post-Hearing Questions for the Record Related to the 
Department of Defense's National Security Personnel System (NSPS)' 
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March 24, 2006: 

The Honorable Susan M. Collins:
Chairman: 
The Honorable Joseph I. Lieberman: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Subject: Post-Hearing Questions for the Record Related to the 
Department of Defense's National Security Personnel System (NSPS): 

On November 17, 2005, I testified before your Committee at a hearing 
entitled: "From Proposed to Final: Evaluating the Regulations for the 
National Security Personnel System".[Footnote 1] This letter responds 
to your requests for my response to questions for the record. 

Questions from Senator John Warner: 

1. The civilian mariners have a long tradition of supporting our 
military forces--operating at the call of a combatant commander on Navy 
vessels--carrying combat equipment and supplies to fighting forces 
during World War II, Korea, Vietnam and our current military 
operations. They also have a unique legal status as excepted employees-
-whose compensation is tied to prevailing wage rates for commercial 
crews. 

To what extent did the Department examine the appropriateness of the 
NSPS authorities governing labor relations for certain unique segments 
of the workforce, such as the civilian mariners? 

In supplementary information to the final regulations, DOD and OPM 
responded to comments suggesting that certain groups of employees, 
including teachers, public safety employees, civilian mariners, be 
excluded from the labor relations system. In evaluating the merits of 
excluding these groups of employees from the labor relations system, 
DOD and OPM noted that the Department considered the employees' unique 
characteristics but could find no compelling argument that this 
particular group should not be covered by the new system. 

Is legislation needed to permit the Secretary to exempt any DOD unit 
from the labor relations provisions if the Secretary thought it 
necessary to do so? 

We understand that DOD's interpretation of section 9902(m)(8) of Title 
5 is that legislation would be needed to allow the Secretary of Defense 
to exempt any unit from the labor relations system. If this is DOD's 
position, then clarifying legislation would be necessary. 

2. The GAO, as part of its ongoing review of the Department's 
implementation efforts, has emphasized the importance of employee buy- 
in to the new system, and also of evaluating its success throughout 
implementation. 

What are the specific mechanisms that will be in place for continuous 
employee involvement, and for evaluation of the NSPS system? 

As we noted in our statement, DOD faces a significant challenge in 
involving--and continuing to involve--its employees, employee 
representatives, and other stakeholders in implementing NSPS. DOD's 
final regulations, while providing for continuing collaboration with 
employee representatives, do not identify a process for the continuing 
involvement of employees and other key stakeholders in implementation 
of NSPS. DOD's final NSPS regulations on the collaboration process, 
among other things, would permit the Secretary of Defense to determine 
(1) the number of employee representatives allowed to engage in the 
collaboration process, and (2) the extent to which employee 
representatives are given an opportunity to discuss their views with 
and submit written comments to DOD officials. In addition, DOD's final 
regulations indicate that nothing in the continuing collaboration 
process will affect the right of the Secretary of Defense to determine 
the content of implementing guidance and to make this guidance 
effective at any time. DOD's final regulations will give designated 
employee representatives an opportunity to be briefed and to comment on 
the design and results of the new system's implementation. However, the 
active, visible, and continuous involvement of top key players, 
including the Secretary and Deputy Secretary of Defense, the military 
services' secretaries, and presidents of the employee labor unions will 
be a major factor in determining whether such efforts will be 
meaningful, successful, and credible. 

Our prior statement and work also indicate that evaluating the effect 
of NSPS will be an ongoing challenge for DOD. As we noted in our 
statement, DOD's final regulations indicate that DOD will evaluate the 
regulations and their implementation. In our July 2005 report on DOD's 
efforts to design NSPS, we recommended that DOD develop procedures for 
evaluating NSPS that contain results-oriented performance measures and 
reporting requirements.[Footnote 2] We also recommended that these 
evaluation procedures could be broadly modeled on the evaluation 
requirements of the OPM demonstration projects. If the department 
follows through with this effort, we believe that it will be responsive 
to our recommendation. 

How will the Department know whether or not the new system is "getting 
it right"? 

Our answer to question 2 above regarding evaluating the effect of NSPS 
applies to this question. 

3. The level of employee and employee representative participation will 
help determine the success of this personnel system for DOD, and 
ultimately, possible extensions throughout the federal government. GAO 
Comptroller General Walker underscored the need for DOD to continue to 
involve employees, including employee representatives, throughout the 
implementation process. The "implementing issuance" process, which 
remains under the sole authorization of the Secretary of Defense and 
other principal partners, will provide the ultimate framework and 
details for important aspects of implementing NSPS. While final 
regulations specify that employee representatives will have the 
opportunity to participate in this process, could you elaborate on some 
of the ways you will seek to request and include suggestions from 
employees and their representatives in the implementing issuances? 

By including employees and their representatives in the planning 
process, organizations can improve related policies and processes, 
increase their acceptance within the workforce and minimize any 
potential adverse morale implications. For NSPS to be a successful 
transformation, it must involve DOD employees and their representatives 
from the beginning of the process in order to obtain their input and 
acceptance, and hopefully their ownership of the changes that are 
occurring within the department. Employee involvement strengthens the 
transformation process by including frontline perspective and 
experiences. Further employee involvement helps to create the 
opportunity to establish new networks and break down existing 
organizational silos, increase employees' understanding and acceptance 
of organizational goals and objectives, gain ownership for new policies 
and procedures, and reduce related implementation risks. 

Our prior work also indicates that involving employees and other 
stakeholders helps to improve overall confidence and belief in the 
fairness of the system, enhance their understanding of how the system 
works, and increase their understanding and ownership of organizational 
goals and objectives. Organizations have found that the inclusion of 
employees and their representatives needs to be meaningful, not just 
pro forma. At GAO, to obtain direct feedback from employees, we created 
the elected Employee Advisory Council (EAC) to serve as an advisory 
body to the Comptroller General and other senior executives on a range 
of management and employee issues. Comprising employees who represent a 
cross-section of the agency, the EAC's participation is an important 
source of front-end input and feedback on our human capital and other 
major management initiatives. Specifically, EAC members convey the 
views and concerns of the groups they represent, while remaining 
sensitive to the collective best interest of all GAO employees; propose 
solutions to concerns raised by employees; provide input to and comment 
on GAO policies, procedures, plans, and practices; and help to 
communicate management's issues and concerns to employees while also 
relaying employees' comments and concerns to management. 

We have found that organizations undergoing a transformation should 
establish a communications strategy that creates shared expectations 
and seeks to genuinely involve stakeholders in the process. As we have 
noted in our prior testimonies on DOD's human resources management 
system, it will face multiple implementation challenges that include 
establishing overall communications strategies and involving employees 
in implementing the new systems. We believe that one of the most 
relevant implementation steps is for DOD to enhance two-way 
communication between employees, employee representatives, and 
management, including enhancing communication between top political 
appointees and labor leaders. To enhance communications, there needs to 
be visible and ongoing involvement of a number of top-level DOD 
leaders, including the Secretary and Deputy Secretary of Defense, and 
the military services' secretaries. Frequent and timely communication 
cultivates a strong relationship with management and helps gain 
employee ownership for a transformation like NSPS. But communication is 
not about just "pushing the message out" or seeking information without 
any meaningful response. It should facilitate a two-way honest exchange 
with and allow feedback from employees, employee representatives, 
customers, and stakeholders. Once employee feedback is received, it is 
important to acknowledge, consider, and use it to make any appropriate 
changes to the implementation of the transformation. 

4. As Chairman of the Senate Armed Services Committee and as a veteran 
of World War II and the Korean War, I have a profound respect and 
gratitude for our nation's veterans. During my 27 years in the Senate, 
I have supported efforts to provide veterans with employment 
opportunities in the federal government. Concerns have been expressed 
that the final regulations modify the current rules governing workforce 
reshaping, and consequently could negatively impact DOD's veteran 
employees. What assurance can you provide my colleagues and I that the 
changes will not have a detrimental impact on veterans? 

While GAO cannot provide any assurance that the final NSPS regulations 
will not have a detrimental impact on veterans, we note that the 
regulations continue to give veterans' preference the same priority in 
the event of a reduction-in-force (RIF) as under current regulations. 

5. During my service as Secretary of the Navy--during which I was 
privileged to have some 650,000 civilian employees working side by side 
with the uniformed Navy, --I valued very highly the sense of teamwork 
between the civilian and uniformed members of the United States Navy. 
Teamwork is an intrinsic military value, in my judgment, and essential 
to mission accomplishment. Some have been concerned that NSPS could 
undermine that sense of teamwork by increasing the competition between 
individuals for recognition of their performance. How can we safeguard 
this essential element of national service--teamwork--as we move 
forward in changing the personnel systems of the Department of Defense? 

Senior executives need to lead the way to transform their agencies' 
cultures to be more results-oriented, customer focused, and 
collaborative in nature. Performance management systems can help manage 
and direct this process. As public sector organizations shift their 
focus of accountability from outputs to results, they have recognized 
that the activities needed to achieve those results often transcend 
specific organizational boundaries. Consequently, organizations that 
focus on collaboration, interaction, and teamwork across organizational 
boundaries are increasingly critical to achieve results. High 
performing organizations use their performance management systems to 
strengthen accountability for results, specifically by placing greater 
emphasis on competencies and other factors that promote teamwork and 
collaboration to achieve desired organizational results. 

6. In preparation for a hearing of the Armed Services Committee which I 
chaired in April, 2005, I asked my good friend John Gage to whittle 
down the scores of issues that he identified with the draft regulations 
to a few flashpoint issues--a handful of things that had the highest 
priority from his perspective. He did that, and in his testimony to the 
SASC on April 14, 2005, identified six "flashpoints" of concern: 

1. The scope of bargaining: 

2. Composition of the National Security Relations Board: 

3. The standard for mitigation of adverse actions by the Merit Systems 
Protection Board: 

4. The requirement for written standards for employee performance: 

5. A general lowering of pay for the DOD civilian workforce; and: 

6. Procedures for identifying who will be affected by a Reduction in 
Force. 

It is my understanding that the final regulations reflect progress on 
some of these issues. How far has the Department come in addressing 
these issues to ensure the success of NSPS? 

Importantly, DOD should move expeditiously to resolve the appeals 
issue, since it will be critical to the effective, credible, and fair 
implementation of any major classification, compensation and 
performance management, and reduction-in-force changes. John Gage is in 
the best position to judge if his concerns are being addressed. 
However, as you noted, the final regulations reflect progress on some 
of the issues John Gage identified as flashpoints. However, 10 federal 
labor unions filed suit last fall challenging the final NSPS 
regulations on several grounds. On February 27, 2006, the U.S. District 
Court for the District of Columbia found that DOD was authorized to 
establish a labor relations system that differed from the federal labor 
relations system under Chapter 71 of title 5 of the U.S. Code, and that 
DOD satisfied their statutory obligation to collaborate with the 
unions.[Footnote 3] The court, however, ruled that the final NSPS 
regulations do not ensure that employees can bargain collectively. The 
court also ruled that the proposed internal labor relations board at 
DOD is not an "independent third party" as required by the NSPS 
authorizing legislation and that the proposed employee appeals process 
does not provide fair treatment to DOD employees. The court permanently 
enjoined DoD from implementing the parts of the final NSPS regulations 
addressing adverse actions, appeals, and labor relations. At this 
point, DOD and OPM officials are continuing to work with the Department 
of Justice to determine their next steps relative to the court's 
decision. As such, while DOD can implement the performance management, 
compensation and classification, staffing, and workforce shaping 
portions of the regulation, the regulations on the scope of bargaining, 
composition of the National Security Labor Relations Board, and the 
standard for mitigation of adverse actions by the Merit Systems 
Protection Board may not move forward. 

In response to public comments to its proposed regulations and feedback 
obtained during the meet and confer process with employee 
representatives, DOD modified the proposed regulations, so that the 
final regulations state that the basic performance expectations should 
be provided to employees in writing. 

Similar to the proposed regulations, DOD's final regulations could not 
reduce employees' basic rates of pay when converting to pay bands. 
However, employees' compensation may increase at a rate higher or lower 
than under the current compensation system because under NSPS 
compensation is designed to be (1) market-based, with consideration of 
local market conditions to set pay rates, and (2) more performance- 
oriented. 

Similar to the proposed regulations, the final NSPS regulations allow 
DOD to reduce, realign, and reorganize the department's workforce 
through revised reduction-in-force (RIF) procedures. In a change from 
the proposed regulations, employees serving in an initial probationary 
period have a lower retention standing than career employees (i.e., 
permanent will be listed first, followed by employees serving an 
initial probationary period, and then followed by employees on 
temporary appointments). In another change, the final regulations 
reflect the use of more than one year's performance ratings in placing 
employees on the retention list. 

Questions from Senator Joseph Lieberman: 

Downward pressure on pay levels. 

John Gage in his written testimony expresses concern that the NSPS 
system will create downward pressure on DOD civilian pay. Are there 
mechanisms that you could suggest to assure that pay levels are 
adequate for employee recruitment and retention and to truly reward 
good performance? 

We have observed that a competitive, market-based compensation system 
can help organizations attract and retain a quality workforce. 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. DOD needs to conduct 
annual, high-level compensation reviews to determine the 
competitiveness of the pay ranges, and periodic (every 3 to 5 years) 
much more comprehensive compensation studies while at the same point in 
time, monitoring employee recruiting, retention statistics as well as 
employee feedback during the interim in order to try to help assure the 
competitiveness of the system. 

We have reported that direct costs associated with salaries were one of 
the major cost drivers of implementing pay for performance systems, 
based on the data provided us by selected Office of Personnel 
Management demonstration projects. We found that some of the 
demonstration projects intended to manage costs by providing a mix of 
one-time awards and permanent pay increases. Rewarding an employee's 
performance with an award instead of an equivalent increase to base pay 
can help contain salary costs in the long run because the agency only 
has to pay the amount of the award one time, rather than annually. 

Safeguards to help ensure fairness and guard against abuse. 

Mr. Walker, in your testimony you expressed concern about whether the 
regulations contain adequate safeguards to help ensure fairness and 
guard against abuse. This seems particularly relevant with respect to 
the process for assessing performance. 

Could you elaborate on what kinds of safeguards you believe should be 
considered in this context? 

As we noted in our statement, although DOD's proposed regulations 
provide for some safeguards to ensure fairness and guard against abuse, 
additional safeguards should be developed. We have developed an initial 
list of possible safeguards to help ensure that pay-for-performance 
systems in the government are fair, effective, and credible. The 
safeguards include, among other things, the following. 

* Assure that certain predecisional internal safeguards exist to help 
achieve the consistency, equity, nondiscrimination, and 
nonpoliticization of the performance management process (e.g. 
independent reasonableness reviews by Human Capital Offices and/or 
Offices of Opportunity and Inclusiveness or their equivalent in 
connection with the establishment and implementation of a performance 
appraisal system, as well as reviews of performance rating decisions, 
pay determinations, and promotion actions before they are finalized to 
ensure that they are merit-based; internal grievance processes to 
address employee complaints; and pay panels whose membership is 
predominantly made up of career officials who would consider the 
results of the performance appraisal process and other information in 
connection with final pay decisions). 

* Assure that there are reasonable transparency and appropriate 
accountability mechanisms in connection with the results of the 
performance management process. This includes reporting periodically on 
internal assessments and employee survey results relating to the 
performance management system and publishing overall results of 
performance management and individual pay decisions while protecting 
individual confidentiality. 

* Assure that the agency's performance management systems (1) link to 
the agency's strategic plan, related goals, and desired outcomes and 
(2) result in meaningful distinctions in individual employee 
performance. This should include consideration of critical competencies 
and achievement of concrete results. 

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

* Assure that there is an independent and credible employee appeals 
mechanism. 

Do you know of federal agencies where such mechanisms have proven 
effective to guard against unfairness and abuse in a pay-for- 
performance system? 

The list of safeguards mentioned earlier are based on our own 
experience at GAO as well as our extensive body of work looking at the 
performance management practices used by leading public and private 
sector organizations in the United States. For example, to help provide 
transparency on how employees' performance compares to the rest of an 
organization, we previously reported that that Naval Sea Systems 
Command Warfare Center's Newport division publishes the results of its 
annual performance cycle. Newport aggregates the data so that no 
individual employee's rating or payout can be determined to protect 
confidentiality. Employees can compare their performance rating 
category against others in the same unit, other units, and the entire 
division. 

IBM built in several accountability mechanisms to help achieve 
consistency and equity in pay decisions across employee groups and 
teams. To help ensure there is no discrimination in pay decisions, IBM 
conducts a base pay equity analysis to review the pay of women or 
minority employees if their proposed pay is one standard deviation or 
more away from the mean of the majority of employees and looks for an 
explanation for these pay differences, such as poor performance, a 
recent promotion into the pay band, or an extended leave of absence. In 
addition, IBM built in second-level reviews of pay decisions before 
employees receive any pay increases to ensure consistency in the 
compensation process. The first-line managers discuss their proposed 
pay decisions with managers at the next level--the up-line managers--to 
ensure the performance assessments and justifications are consistent 
across groups. Up-line managers can also shift pay allocations across 
groups if necessary in order to ensure employees who perform similarly 
are compensated the same regardless of their first-line managers. As a 
final check, the senior managers sign off on the pay decisions for each 
employee. 

Questions from Senator Daniel Akaka: 

1. As you know, I was joined by Senators Collins, Lieberman, and 
Voinovich in asking GAO to review the costs associated with the design, 
implementation, and training related to the National Security Personnel 
System (NSPS) so I am very pleased that our request has been elevated 
to a GAO initiative. Your evaluation will assist us greatly with our 
oversight of NSPS. What methodologies, mileposts, and timeframes have 
been established for the review? 

As we have noted in our most recent testimony, DOD is challenged to 
provide adequate resources to implement its new personnel system, 
especially during a time when some of the department's resources are 
being directed towards the Global War on Terrorism. By April 2006, we 
plan to begin an evaluation of the costs associated with the design and 
implementation of NSPS, and provide Congress with relevant information 
by September 2006. 

2. You have repeatedly testified that safeguards are needed to ensure 
fairness and guard against abuse in any pay-for-performance system. 
From your meetings with the Department of Defense (DOD) and the Office 
of Personnel Management (OPM), do you know why similar safeguards have 
not been included in the NSPS final regulations? 

In our most recent testimony on the final NSPS regulations, we noted 
several issues that DOD will need to define in more detail than is 
currently provided. We believe that the details of DOD's system do 
matter and that they should have been addressed in the final 
regulations and then further defined in implementing issuances. 
Importantly, DOD has plans to issue a number of issuances that will 
contain detailed policies and procedures for the new system. These 
issuances will be of critical importance and their content will include 
important details that can serve to either enhance or reduce the 
likelihood of a successful implementation. Hopefully, these issuances 
will be responsive to our recommendations with regard to the need for 
additional safeguards. In any event, these critically important details 
must be defined in conjunction with applicable key stakeholders and 
certain steps should be taken before any new authorities are 
implemented. 

3. Mr. Walker, you support revising reduction-in-force (RIF) procedures 
to emphasize employee performance over tenure. However, union 
representatives state that the change in RIF procedures will adversely 
impact veterans by allowing DOD to design a RIF that will affect only 
veterans. Would you comment on this, and do you have any suggestions as 
to how this situation can be avoided? 

Our answer to Senator Warner's question 4 above also applies to this 
question. 

4. DOD has clearly stated that NSPS must be perceived as fair by 
employees. However, based on public comment and congressional testimony 
from employee representatives, it appears that employees believe NSPS 
is neither fair nor perceived as fair. What would you do to make the 
NSPS appeals system both fair and perceived as fair by employees? 

There is no question that DOD's proposed and final regulations relating 
to the adverse actions and appeals process has not been without 
controversy. As you know, 10 federal labor unions filed suit alleging 
that, among other things, DOD's adverse actions and appeals process is 
unlawful. In ruling on the labor unions' suit, a federal judge found 
that DOD's appeals process does not provide fair treatment to DOD 
employees, and permanently enjoined DOD from moving forward with 
implementing the final regulations relating to the adverse actions and 
appeals process.[Footnote 4] 

As Comptroller General, I have worked with others to make the 
Government Accountability Office a model federal agency by transforming 
its organization and operations to address the challenges and 
opportunities of the 21st century. In other presidentially appointed 
posts, including public trustee for Social Security and Medicare, I 
have seen the federal government falter in its attempts at major public 
policy reforms in those areas. The process one employs to advance major 
initiatives is critical. Based on my experience, three key process 
related elements maximize the chances for success: principles, players, 
and proposals. 

With regard to principles, before leaders can achieve major internal or 
external changes, they need to make a clear and compelling case that 
the status quo is unacceptable and unsustainable. But that's not 
enough. Leaders also must provide a set of clear, comprehensive and 
compelling principles to frame the debate and help others understand 
the overall direction and objectives. 

With regard to players, any major reform effort requires the direct and 
sustained involvement of an organization's chief executive officer. But 
the CEO also must recruit champions from various stakeholder groups. 
For internal reforms, this includes managers, employees and employee 
organizations. For legislative reforms, it includes businesses, unions, 
citizen groups, think tanks, the media and members of both major 
political parties. Champions should be capable, credible, committed and 
effective communicators. These individuals also should be part of a 
broad-based "big tent" approach to both crafting and selling reform 
proposals. 

With regard to proposals, a detailed plan should be developed and 
presented or endorsed for action. The proposal should be consistent 
with the articulated principles, supported by applicable champions and 
informed by the "big tent" process. There is always risk in presenting 
a specific plan, especially in politically charged environments. But 
realistic leaders recognize that any major reform proposal is likely to 
be revised before it is enacted. Revisions could include desirable 
improvements or necessary compromises, but as the old saying goes, 
"Don't let the perfect be the enemy of the good." 

These three steps to reform do not have to be addressed in a particular 
or guarantee success, but failure to effectively address one or more 
would likely ensure defeat. 

For additional information on our work on human capital issues at DOD, 
please contact me on 512-5500 or Derek B. Stewart, Director, Defense 
Capabilities and Management on 512-5559 or stewartd@gao.gov, or J. 
Christopher Mihm, Managing Director, Strategic Issues on governmentwide 
human capital issues at 512-6806 or mihmj@gao.gov. 

David M. Walker: 
Comptroller General of the United States: 

(350806): 

FOOTNOTES 

[1] GAO, Human Capital: Observations on Final Regulations for DOD's 
National Security Personnel System, GAO-06-227T (Washington, D.C.: Nov. 
17, 2005). 

[2] GAO, Human Capital: DOD's National Security Personnel System Faces 
Implementation Challenges, GAO-05-730 (Washington, D.C.: July 14, 
2005). 

[3] American Federation of Government Employees, AFL-CIO, et. al. v. 
Rumsfeld et al, No. 05-2183, 2006 U.S. Dist. LEXIS 7068 (D.D.C. Feb. 
27, 2006). 

[4] American Federation of Government Employees, AFL-CIO, et. al. v. 
Rumsfeld et al, No. 05-2183, 2006 U.S. Dist. LEXIS 7068 (D.D.C. Feb. 
27, 2006).