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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: 

For Release on Delivery Expected at 10:30 a.m. EDT April 21, 2005: 

Human Capital: 

Agencies Need Leadership and the Supporting Infrastructure to Take 
Advantage of New Flexibilities: 

Statement of Eileen Larence, Director:
Strategic Issues: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-616T]: 

GAO Highlights: 

Highlights of GAO-05-616T 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:

Strategic human capital is the centerpiece of agencies’ efforts to 
transform into high-performing organizations poised to meet the 
challenges of the 21st Century. Congress, recognizing that the federal 
human capital management systems designed in the past are outmoded, has 
provided agencies with exemptions from the old rules and new 
flexibilities to more strategically manage their workforce. Congress 
has already granted statutory exemptions and new authorities affecting 
more than 1.2 million civilian federal employees. The momentum is 
building to continue to reform the policies, processes, and systems 
that govern federal human capital management. Congress is interested in 
taking stock of how agencies have implemented the new flexibilities 
they have been granted, especially as it considers the future steps to 
be taken to achieve human capital reform.

At the request of the subcommittee, this statement provides an update 
of GAO’s work on the progress agencies have made in implementing these 
flexibilities to better accomplish their missions and achieve their 
goals. In addition, it provides information on GAO’s experiences with 
human capital reform and also highlights a set of consistent 
principles, criteria, and processes that can help to guide future 
reforms, whether they are new flexibilities granted to individual 
agencies or applied governmentwide. 

What GAO Found: 

To take full advantage of the flexibilities provided, agencies need 
leaders committed to taking a more strategic approach to managing their 
people in order to improve mission results, and must have the necessary 
infrastructure in place to make effective use of the flexibilities. 
This infrastructure includes a human capital planning process that 
integrates human capital policies, strategies, and programs with its 
program goals, mission, and desired outcomes; the capabilities to 
effectively develop and implement a new human capital system; and 
importantly, the existence of a modern, effective, and credible 
performance management system that includes adequate safeguards to help 
ensure consistency. GAO’s work shows that, to date, agencies are using 
the flexibilities to varying degrees but continue to face barriers. In 
the future, agencies should have to demonstrate they have the required 
infrastructure and safeguards in place before using any new human 
capital authorities.

*	Accountable Leadership: Effective performance management 
systems first align leadership’s performance expectations, appraisal 
systems, and compensation programs with organizational goals and 
results, then cascade this approach through all levels in the 
organization. Accordingly, agencies now have authority to increase 
senior executive pay levels, but only if they have an effective 
performance management system—one that links individual and 
organizational results and makes meaningful distinctions in 
performance. Recent data show, however, that agencies face a challenge 
in meeting the criteria for qualifying for the new executive pay 
flexibilities. GAO also continues to see opportunities for Chief Human 
Capital Officers and their Council to help agencies better implement 
various flexibilities and share best practices, while providing 
strategic leadership for reform.

*	Strategic human capital planning: Identifying current and 
future workforce gaps and ways to use flexibilities to fill them would 
help agencies remain competitive and achieve their missions. Some 
agencies do not have all the components of a strategic human capital 
planning process in place to help them resolve workforce challenges. 
GAO identified five key principles that could help guide and inform 
agencies’ efforts to build this process.

*	Capabilities to use new tools: Agencies have not used some of 
the flexibilities designed to help them recruit and hire top talent as 
much as possible because of a lack of policy and guidance, among other 
things. OPM has since reported taking a number of initiatives to better 
educate agencies on the tools and encourage their use. 

Agencies need to continue implementing new tools, evaluating their 
impact, and making adjustments. Congress’ interest in monitoring agency 
progress is a critical ingredient to the success of these reforms. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-616T].

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 
[Hyperlink, larencee@gao.gov].

[End of Section]

Chairman Voinovich and Members of the Subcommittee: 

I am pleased to be here today to discuss our work on agencies' use of 
recently enacted human capital flexibilities to help address workforce 
challenges. In broad terms, human capital flexibilities represent the 
policies and practices that an agency has the authority to implement in 
managing its workforce to accomplish its mission and achieve its goals. 
The tailored use of such flexibilities for acquiring, developing, and 
retaining talent is an important cornerstone of GAO's model of 
strategic human capital management. The subcommittee's interest in 
taking stock of where agencies are in using the flexibilities provided 
to them is critical and timely. 

As we have consistently testified, and as the subcommittee has 
consistently recognized, an agency's human capital is its most 
important catalyst for transforming to meet the new challenges of the 
21ST century. We have also recognized that the federal human capital 
systems designed in the past are outmoded and, in some cases, barriers 
to an agency's transformation. Consequently, over the past few years, 
Congress has granted certain agencies exemptions from these old rules, 
as well as new flexibilities to recruit, hire, develop, manage, retain, 
and compensate the people with the knowledge, skills, and abilities 
that agencies need to accomplish their critical missions and compete 
with the private sector for top talent. This is especially important as 
the nation faces long-term fiscal challenges, and therefore, agencies 
are likely to have resource constraints in the future. 

We have also learned, however, that to benefit from these reforms, 
agencies should have the appropriate institutional infrastructure and 
safeguards in place to make effective use of these new authorities. 
Agencies need leaders who are committed to taking a more strategic 
approach to managing their human capital assets. These leaders provide 
the organizational vision important in times of change, use the 
flexibilities available to them in a targeted and responsible manner, 
and ensure that human capital strategies are well-planned, thoroughly 
implemented, and sustained over time. Agencies also need a supporting 
infrastructure that includes a human capital planning process that 
integrates human capital policies, strategies, and programs with its 
program goals, mission, and desired outcomes; the capabilities to 
effectively develop and implement a new human capital system; and, 
importantly, the existence of a modern, effective, and credible 
performance management system that includes adequate safeguards to help 
ensure consistency. 

There continues to be widespread interest in reforming the policies, 
processes, and systems that govern federal human capital management. In 
ongoing work for Senator Susan Collins, we are cataloguing the wide 
array of statutory exemptions and new authorities that Congress has 
already granted to a select group of agencies, affecting more than 1.2 
million civilian employees. Moving forward, Congress may continue to 
grant flexibilities to individual agencies or on a governmentwide 
basis. It will be important to ensure that agencies first have a 
business case for using the flexibilities, as well as the necessary 
infrastructure and safeguards in place to use them effectively and in a 
non abusive manner. In addition, there is general recognition that the 
government needs a framework to guide further reforms. GAO, working 
with its external partners, has proposed a common framework built 
around a fundamental set of principles, criteria, and processes. This 
could help to enhance the government's performance, ensure agency 
accountability, and provide for a relatively level playing field across 
agencies as they implement new authorities. 

Today, I would like to highlight some of our recent work on the 
progress that agencies have made in implementing the flexibilities 
granted them, and that reinforces the actions Congress and agencies are 
taking or need to take to (1) provide the strategic leadership, (2) 
establish the necessary infrastructure for reforms, (3) better use the 
new flexibilities provided, and (4) position the government for future 
reform. 

Accountable Leadership Can Serve As a Model for Effective Human Capital 
Management throughout the Agencies: 

High-performing organizations understand that they must have senior 
leaders who are held accountable for results, drive continuous 
improvement, and take a strategic approach to targeting available human 
capital tools and flexibilities that will help them achieve their 
organizational goals. Leaders who model effective performance 
management can help to institutionalize it throughout their agencies. 
As you know, we have advocated, and you have reinforced, that the 
federal government needs to fundamentally rethink its approach to 
performance management, better linking individual, unit, and 
organizational performance and rewarding individuals according to their 
relative performance and contributions. Effective performance 
management systems first align leadership's performance expectations, 
appraisals, and pay with organizational goals and results achieved, 
then cascade this approach through all levels in the organization. In 
October 2000, the Office of Personnel Management (OPM) revised its 
Senior Executive Service (SES) regulations to require agencies to 
implement performance management systems that meet these criteria. 

More recently, Congress provided that agencies that have successfully 
implemented effective performance management systems for their senior 
executives can increase the compensation of their higher-performing 
senior executives beginning in January 2004. To qualify for this 
flexibility, OPM must certify, and the Office of Management and Budget 
(OMB) must concur, that the agency's performance management system 
meets specified certification criteria, including demonstrating that 
its performance management system aligns individual performance 
expectations with the mission and goals of the organization and its 
appraisal system as designed and applied makes meaningful distinctions 
in performance. To receive full 2-year certification, an agency must 
provide documentation that its senior executive performance management 
system meets all nine of the criteria. Otherwise, agencies can meet 
four of nine criteria and demonstrate that their system in design meets 
the remaining certification criteria to receive one-year provisional 
certification and use the higher pay rates. Agencies with one-year 
provisional certification must reapply annually, but agencies with full 
certification must reapply every 2 years. In addition, SES members are 
no longer to receive annual across-the-board or locality pay 
adjustments but to receive pay and bonus increases based on 
contribution, skills, competencies, and other factors. The system also 
replaces the six SES pay levels with a single, open-range pay band. 

Currently, two agencies have received full certification--the General 
Services Administration and the Pension Benefit Guaranty Corporation 
(for its senior-level/scientific or professional positions). The 
Departments of Agriculture, Commerce (for its senior-level/scientific 
or professional positions), Education, Health and Human Services (HHS), 
Homeland Security (DHS), and Labor, as well as the National Aeronautics 
and Space Administration (NASA), and the Office of Government Ethics 
have received provisional certification for calendar year 2005. 

Some Agencies May Face a Challenge in Meeting Criteria for Qualifying 
for the New Executive Pay Flexibilities: 

The criteria that OPM has developed to assess agencies' performance 
management systems are consistent with our research wherein we 
identified a set of key practices for effective performance 
management:[Footnote 1]

* aligning individual performance expectations with organizational 
goals,

* connecting performance expectations to crosscutting goals,

* providing and routinely using performance information to track 
organizational priorities,

* requiring follow-up actions to address organizational priorities,

* using competencies to provide a fuller assessment of performance,

* linking pay to individual and organizational performance,

* making meaningful distinctions in performance,

* involving employees and stakeholders to gain ownership of performance 
management systems, and: 

* maintaining continuity during transitions. 

In anticipation that senior executive performance management and pay 
systems were to be modernized, Chairman Voinovich, at your and former 
House Government Reform Civil Service Subcommittee Chairwoman Jo Ann 
Davis' request, we used these practices as a guide to review how well 
selected agencies were creating linkages between senior executive 
performance and their organizations' success.[Footnote 2] You 
recognized that information on these agencies' experiences and 
knowledge could provide valuable insights to other agencies as they 
seek to use senior executive performance management as a tool to drive 
internal change and achieve external results. Last year, we reported 
that the agencies were implementing some of these practices, such as 
aligning individual and organizational goals. However, we also noted 
that their systems were inconsistent with other practices, such as 
making meaningful distinctions in performance. This is also the case 
governmentwide. For example, OPM data show that about 75 percent of 
executives received the highest performance ratings possible for fiscal 
year 2003 (the most current data available). 

OPM will need to carefully monitor the implementation of the agencies' 
performance management systems, especially those that have provisional 
certification, to ensure that agencies are driving organizational 
performance by making meaningful distinctions in executive performance 
ratings and appropriately paying their senior executives at the higher 
level. A number of executive agencies will be challenged in the short 
term to provide the necessary performance data on their senior 
executives in order to receive full certification or maintain their 
certification. Agencies must provide 2 years of performance rating and 
bonus data showing that meaningful distinctions in SES performance were 
made to qualify. The recent data on SES ratings suggest that some 
agencies' data will not comply. In addition, several agencies' 
provisional certifications for calendar year 2004 expired and have not 
yet been renewed. The Acting Director of OPM noted in a March 2005 
memorandum to agency heads that the SES performance results for fiscal 
year 2003 do not reflect the requirements of the new SES performance-
based pay system and that OPM is analyzing the results of the 2004 
rating cycle to determine the degree to which agencies have met the 
requirements. Depending on the outcome, some agencies may lose their 
certification, and others may not qualify for this new flexibility. The 
key, of course, is not just determining whether distinctions are made 
in ratings, but whether those distinctions are meaningful. That is, the 
distinctions should reflect real differences in individual executives' 
contributions to results. 

The Chief Human Capital Officers Have the Potential to More 
Strategically Implement Flexibilities and Leverage Best Practices among 
Agencies: 

The success agencies have in implementing new human capital 
flexibilities will depend in large measure on their agency leadership, 
the existence of high quality Chief Human Capital Officers (CHCOs), and 
a strategic and effective CHCO Council. The Homeland Security Act of 
2002 established the roles and responsibilities for the CHCO position 
and the Council.[Footnote 3] We have reported that similar interagency 
councils, such as those of the Chief Financial Officers' (CFO) and 
Chief Information Officers', have emerged as important leadership 
strategies in both developing policies that are sensitive to 
implementation concerns and gaining consensus and consistent follow-
through within the executive branch.[Footnote 4] The CHCO Council can 
fulfill an equally important role. 

As stated in its charter, the Council's purposes include (1) advising 
OPM, OMB, and agency leaders on human capital strategies and policies, 
as well as on the assessment of human capital management in federal 
agencies; (2) informing and coordinating the activities of its member 
agencies on such matters as the modernization of human resources 
systems; and (3) providing leadership in identifying and addressing the 
needs of the government's human capital community. 

To help fulfill this role, the Council has created subcommittees to 
address and recommend changes for key areas identified by the Council's 
leadership as critical to the success of strategic human capital 
management, including the hiring process and performance management, as 
well as leadership development and succession planning. To date, the 
Council has continued to define its agenda and priorities and to 
establish itself. For example, the former OPM Director reported that 
the Council's CHCO Academy was already proving to be a productive forum 
for discussing human resources issues among small groups of CHCOs. The 
Council established the Academy as a forum for Council members to 
discuss federal human resource issues, learn from one another in an 
informal setting, and share best practices in the strategic management 
of human capital. The Academy has considered topics such as (1) current 
workforce flexibilities and associated regulations, (2) human resources 
competitive sourcing, and (3) compensation reform. The subcommittees 
are also making some progress. For example, the leadership and 
succession planning subcommittee has made recommendations in a briefing 
to the full Council to set up a rotation program for senior executives 
among different agencies, among other things. 

It is critical for the CHCO Council to leverage its progress to achieve 
significant accomplishments and facilitate lasting change. As just one 
illustration of the importance of their leadership and coordination 
roles, OPM agreed with our May 2003 recommendation to work with and 
through the Council to (1) more thoroughly research, compile, and 
analyze information on the effective and innovative use of human 
capital flexibilities and (2) more fully serve as a clearinghouse in 
sharing and distributing information about when, where, and how the 
broad range of flexibilities are being used, and should be used, to 
help agencies meet their human capital management needs.[Footnote 5] 
Our ongoing work assessing select agencies' succession planning, as 
well as their use of recruitment and retention tools, suggests that 
agencies continue to need an avenue for sharing ideas and best 
practices and the Council could provide that venue. 

We also observed that more strategically, the Council could focus on 
several other key crosscutting areas, such as: 

* developing the capabilities required for the successful 
implementation of human capital reform,

* promoting strategic human capital planning, and: 

* transforming the human capital office and its processes to more fully 
contribute to key agency decisions. 

For example, selected agencies are seeking to shift the focus of their 
human capital offices from primarily compliance activities to 
consulting activities. They are including human capital leaders in key 
agency strategic planning and decision making. In addition, their human 
capital leaders took actions to transform the agencies' human capital 
organizations by establishing clear strategic visions, restructuring 
their organizations, and improving the use of technology to free 
organizational resources. As a result, the agencies engaged the human 
capital organization as a strategic partner in achieving desired 
outcomes relating to the agencies' mission. 

To continue this shift to a more strategic role, human capital offices 
are also understanding that they need to think broadly about how 
specific services are delivered. Human capital offices have 
traditionally used alternative service delivery (ASD)--the use of other 
than internal staff to provide a service or to deliver a product--as a 
way to reduce costs for transaction-based services, such as payroll 
administration. Going forward, human capital offices are seeking to use 
this approach for more strategic functions, such as workforce planning. 
We continue to see a role for OPM to provide comprehensive information 
about how agencies can use ASD for their human capital activities and 
that the CHCO Council could be an excellent vehicle to assist in this 
area. 

Strategic Human Capital Planning Can Help Agencies Take Advantage of 
Human Capital Flexibilities but Remains a Continuing Challenge: 

An essential element in the institutional infrastructure that agencies 
need for their human capital management is a human capital planning 
process that ensures that an agency will capitalize on its workforce's 
strengths and target the use of its flexibilities. Strategic human 
capital planning addresses two critical needs: (1) aligning an 
organization's human capital program with its current and emerging 
mission and programmatic goals and (2) developing long-term strategies 
for using available flexibilities to acquire, develop, and retain staff 
to achieve those goals. 

While there has been increased attention to such planning, strategic 
human capital management has remained on GAO's high-risk list because 
federal human capital strategies are still not appropriately 
constituted to meet current and emerging challenges or drive the 
transformations necessary for agencies to meet these challenges. We 
have continued to report opportunities for various agencies to improve 
the state of their human capital planning. For example, we reported in 
March that the Space Shuttle Program within NASA has made limited 
progress toward developing a detailed long-term strategy for 
transitioning its space shuttle workforce once the shuttle is 
retired.[Footnote 6] Last year, we similarly reported that a major 
challenge the Department of Defense (DOD) and most of its components 
face in their efforts to develop and implement strategic workforce 
plans is their need for information on current competencies and those 
that will likely be needed in the future.[Footnote 7]

While agencies' approaches to workforce planning will vary, GAO 
identified five key principles that this planning should consistently 
address: 

* Involve top management, employees, and other stakeholders in 
developing, communicating, and implementing the strategic workforce 
plan. 

* Determine the critical skills and competencies that will be needed to 
achieve current and future programmatic results. 

* Develop strategies that are tailored to address gaps in the number, 
deployment, and alignment of human capital approaches for enabling and 
sustaining the contributions of all critical skills and competencies. 

* Build the capability needed to address administrative, educational, 
and other requirements important to support workforce planning 
strategies. 

* Monitor and evaluate the agency's progress toward its human capital 
goals and the contribution that human capital results have made toward 
achieving programmatic results. 

Figure 1 illustrates a model strategic human capital planning process 
that can help to inform agencies' efforts to define their workforces of 
the future. 

Figure 1: Strategic Workforce Planning Process: 

[See PDF for image]

[End of figure]

Strategic Approach to Succession Planning and Training Is Also 
Critical: 

A key piece of an agency's strategic human capital plan should also 
acknowledge the demographic trends that the agency faces with its 
workforce, especially pending retirements, and include succession 
strategies and training and development programs to ensure that it will 
have the knowledge, skills, and abilities it needs to meet its mission. 
Leading agencies go beyond a succession planning approach that focuses 
on simply replacing individuals and engage in broad, integrated 
succession planning and management efforts that focus on strengthening 
both current and future organizational capacity. Senator Voinovich, at 
your and former Chairwoman Davis' request, we reviewed how agencies in 
four countries are adopting a more strategic approach to managing the 
succession of their senior executives and other public sector employees 
with critical skills.[Footnote 8] Subsequently, you asked us to follow 
up with a review of how selected federal agencies are implementing 
succession planning and management efforts, as well as the practices we 
observed in other countries. We plan to report to you on the results of 
our research in the coming weeks. 

Once agencies have used their succession planning to identify workforce 
gaps, one strategy they can use to fill these gaps is to implement well-
designed training and development programs. Training and developing new 
and current staff to fill new roles and work in different ways will 
transform how agencies do business and engage employees in further 
innovation and improvements. In addition, we have reported that 
educating managers and employees goes a long way in ensuring the 
effective use of flexibilities, and completion of a training plan can 
acknowledge the costs of implementation and provide that they be 
budgeted up front. In this context, we published a guide in March 2004 
for assessing training and development efforts in the federal 
government.[Footnote 9] As part of the guide, we identified the four 
broad, interrelated components of the training and development process: 
(1) planning/front-end analysis, (2) design/development, (3) 
implementation, and (4) evaluation. Agencies can use this guide to 
assess and revise their own programs. 

It will be critical for DHS and DOD, as they continue to design and 
implement a totally new human capital system in their agencies, to take 
such a strategic approach to their training and development programs. 
This will help to ensure that (1) managers and employers are prepared 
to succeed in implementing the changes, (2) the agencies efficiently 
use their limited training and development funds, and (3) the agencies 
achieve their intended results. 

Evaluation Provides Agencies with Feedback on How Well Their Strategies 
Are Working: 

We previously noted that a critical component of an agency's strategic 
human capital approach is establishing goals prior to the application 
of new flexibilities so that agencies can then collect baseline data 
and establish performance measures to support the evaluation of these 
initiatives.[Footnote 10] Developing meaningful outcome-oriented 
performance goals and collecting performance data to measure the 
achievement of these goals presents a major challenge for many federal 
agencies. It will be especially important for DHS and DOD to carefully 
plan up front for the evaluation of their new human capital systems, 
especially since they could have significant implications for the rest 
of the federal government. We have identified the following elements as 
facilitating this process: 

* establishing clear goals and objectives for the initiative or 
flexibility being implemented,

* designing concrete management improvement steps,

* setting key milestones to track the implementation status, and: 

* collecting cost and performance data to gauge overall 
progress.[Footnote 11]

In addition to facilitating success, effective evaluations would 
facilitate congressional oversight; allow for any midcourse 
corrections; assist agencies in benchmarking progress with other 
efforts; and provide for documenting best practices and sharing lessons 
learned with employees, stakeholders, other federal agencies, and the 
public. 

Agencies Are Taking Advantage of New Flexibilities to Varying Degrees 
but Face Some Barriers: 

As we introduced in testimony to you last year, from our previous 
interviews with human resources directors from across the federal 
government and our previous human capital work, we have reported on six 
key practices that agencies should implement to use human capital 
flexibilities effectively. Figure 2 identifies these key practices. 

Figure 2: Key Practices for Effective Use of Human Capital 
Flexibilities: 

[See PDF for image]

[End of figure]

The overall effort to improve the federal hiring process is a notable 
example highlighting the importance of effectively using flexibilities. 
Agencies complained that they were losing good talent because the 
hiring process was too long and cumbersome. Congress, OPM, and agencies 
have all undertaken efforts to help improve the process. However, in a 
survey we conducted last year, CHCO Council members reported that their 
agencies were making limited use of new hiring flexibilities that 
Congress had provided agencies: category rating and direct-hire 
authority. Category rating is an alternative rating and selection 
procedure that can provide agency managers with a larger pool of 
qualified job candidates from which to select rather than have to use 
numerical ranking and the rule of three,[Footnote 12] while also 
protecting veterans' preference. Direct-hire authority allows agencies 
to appoint candidates directly to positions where OPM determines there 
is a severe shortage of candidates or a critical hiring need, rather 
than numerically rating and ranking applicants. Agencies cited a number 
of barriers to using these flexibilities, including a lack of policy 
and guidance on these tools. 

Consistent with our findings and recommended actions, OPM has since 
reported a wide range of efforts it has undertaken, including some in 
partnership with key external stakeholders, to assist agencies in using 
the new hiring authorities, including a number of important initiatives 
that took place after we surveyed CHCO Council members. For example, 
OPM has hosted training symposia on both tools. OPM has taken these 
actions with the goal of helping to ensure that agencies are aware of 
the hiring flexibilities available to them as well as assisting 
agencies in taking full advantage of these available flexibilities. 

I also wanted to highlight ongoing work that addresses several other 
human capital flexibilities that Congress has provided. First, Congress 
has authorized agencies to repay, at their discretion, their employees' 
student loans as a means to recruit and retain a talented workforce. We 
have work under way to review agencies' use of the program. In 
addition, the Homeland Security Act of 2002 provides governmentwide 
authority for offering voluntary separation incentive payments, 
commonly referred to as buyouts, and voluntary early retirement, or 
early outs, for the purpose of workforce reshaping. We also have work 
under way to identify the extent to which agencies are implementing 
these tools. We plan to report on the results of our research later 
this year. 

GAO's Experiences with Human Capital Reform: 

GAO exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people. We deeply appreciate the support and assistance we 
have received from this subcommittee and others in Congress in 
providing us with the tools and authorities we need to support 
Congress. We believe that it is vitally important to GAO's future that 
the agency continue modernizing and updating our human capital policies 
and system in light of the changing environment and anticipated 
challenges ahead. We believe that the GAO Human Capital Reform Act is 
well reasoned with adequate safeguards for GAO employees. As you know, 
GAO has had certain human capital tools and flexibilities for over two 
decades. GAO's more recent Human Capital Reform Act of 2004 (Human 
Capital II) combines diverse initiatives that, collectively, should 
further GAO's ability to enhance the agency's our performance and 
attract, retain, motivate, and reward a high-performing workforce now 
and in the future.[Footnote 13]

Specifically, Human Capital II allows for a number of additional human 
capital tools and flexibilities, including: 

* making permanent GAO's three-year authority to offer voluntary early 
retirement and voluntary separation incentive payments;

* allowing the Comptroller General to adjust the rates of basic pay of 
GAO employees on a separate basis from the annual adjustments 
authorized for employees of the executive branch;

* providing authority to reimburse employees for certain relocation 
expenses and to award certain employees with additional annual leave 
benefits; and: 

* authorizing an executive exchange program with private sector 
organizations to further the institutional interest of GAO or Congress, 
including for the purpose of providing training. 

Consistent with GAO's long-standing practice, the new human capital 
flexibilities are being implemented in continuing consultation with 
GAO's employees and executives. GAO's regulations for offering 
voluntary early retirement were issued on November 15, 2004. The 
Comptroller General may authorize early retirements for applicants on 
the basis of the institutional needs of GAO, subject to certain 
statutory limits. GAO believes that its careful use of these 
flexibilities will continue to be an important tool in incrementally 
improving the agency's overall human capital profile, freeing resources 
for other uses, and enabling GAO to reduce a skill gap or address other 
succession concerns. 

GAO has also begun to implement the flexibility on adjusting the rates 
of basic pay for GAO employees. GAO is implementing a compensation 
system that places greater emphasis on job performance while, at a 
minimum, protecting the purchasing power of employees who are 
performing acceptably and ensuring that they are paid within 
competitive compensation ranges. With the help of an international 
human capital consulting firm, GAO developed new market-based 
compensation pay ranges for analysts, attorneys, and specialists that 
are already in the first phase of implementation. With the new market-
based pay system, employee compensation will now consider current 
salary and allocate individual performance-based compensation amounts 
between a merit increase (i.e., salary increase) and a performance 
bonus (i.e., cash). GAO is in the early stages of conducting a similar 
study of market-based pay for the remainder of GAO's workforce who 
began the transition to performance-based compensation in 2004 with the 
introduction of pay banding and a new competency-based performance 
appraisal system. 

Draft regulations implementing the Executive Exchange Program were 
provided to employees for comment on January 31, 2005. The comment 
period closed on March 4, 2005 and review and analysis of the comments 
is in process. We anticipate issuing final regulations on or before 
June 1, 2005, and are concurrently working on the operational 
implementation of the program. 

A Consistent Set of Principles, Criteria, and Processes Can Help Guide 
Future Reforms: 

In the future, agencies most likely will continue to request some of 
the flexibilities and reforms granted to agencies such as GAO, DOD, and 
DHS, as they strive to become higher-performing and results-based 
organizations. In response, Congress may continue to grant individual 
reforms or design a set of more comprehensive governmentwide reforms or 
a combination of these approaches. To qualify for these reforms, 
agencies should be able to demonstrate that they have the necessary 
infrastructure in place before they are authorized to implement 
significant human capital flexibilities and authorities. In 
anticipation of future reforms, and to help advance the discussion 
concerning how human capital reform should proceed, GAO and the 
National Commission on the Public Service Implementation Initiative 
hosted a forum on whether there should be a governmentwide framework 
for human capital reform and, if so, what this framework should 
include.[Footnote 14] While there were divergent views among the forum 
participants, there was general agreement on a set of principles, 
criteria, and processes that would serve as a starting point for 
further discussion in developing a governmentwide framework, as shown 
in Figure 3. 

Figure 3: Principles, Criteria, and Processes: 

[See PDF for image]

[End of figure]

Conclusions: 

Strategic human capital management is the centerpiece of the federal 
government's overall management transformation effort. A number of 
stakeholders have a key role in this process. Congress has provided 
agencies, including DOD and DHS, with broad human capital authorities 
to help them with their transformations. Agencies are taking advantage 
of these provided flexibilities but continue to face some barriers. OPM 
and the CHCO Council can continue to assist agencies in navigating 
these flexibilities, as well as take a more coordinated and strategic 
view of federal human capital management policies, processes, and 
systems. Agencies will need to continue implementing these tools, 
evaluating the results achieved, and adjusting implementation, 
especially if they are to use their resources most wisely in a fiscally 
constrained environment. The Subcommittee's and Congress' interest in 
monitoring agencies' progress with these new human capital tools and 
willingness to adjust and support them are a critical ingredient to 
success. Furthermore, agencies requesting additional flexibilities 
should be able to first demonstrate a need and then that they have the 
infrastructure and capabilities to use these flexibilities effectively. 
Finally, in granting these, or more comprehensive governmentwide 
reforms, we have offered Congress a framework, a set of consistent 
principles, criteria, and processes to consider as it designs the 
federal human capital system for the 21ST century. 

Chairman Voinovich and Members of the subcommittee, this concludes my 
prepared statement. I would be pleased to answer any questions you may 
have. 

(450408): 

FOOTNOTES

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

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

[3] Pub. L. No. 107-297, § § 1301-3 (Nov. 25, 2002). 

[4] GAO, Government Management: Observations on OMB's Management 
Leadership Efforts, GAO/T-GGD/AIMD-99-65 (Washington, D.C.: Feb. 4, 
1999). 

[5] GAO, Human Capital: OPM Can Better Assist Agencies in Using 
Personnel Flexibilities, GAO-03-428 (Washington, D.C.: May 9, 2003)

[6] GAO, Space Shuttle: Actions Needed to Better Position NASA to 
Sustain Its Workforce through Retirement, GAO-05-230 (Washington, D.C.: 
March 9, 2005). 

[7] GAO, DOD Civilian Personnel: Comprehensive Strategic Workforce 
Plans Needed, GAO-04-753 (Washington, D.C.: June 30, 2004). 

[8] GAO, Human Capital: Insights for U.S. Agencies from Other 
Countries' Succession Planning and Management Initiatives, GAO-03-914 
(Washington, D.C.: Sept. 15, 2003). 

[9] GAO, Human Capital: A Guide for Assessing Strategic Training and 
Development Efforts in the Federal Government, GAO-04-546G (Washington, 
D.C.: March 2004). 

[10] GAO, Human Capital Management: FAA's Reform Effort Needs a More 
Strategic Approach, GAO-03-156 (Washington, D.C.: Feb. 3, 2003). 

[11] GAO, Management Reform: Elements of Successful Improvement 
Initiatives, GAO/T-GGD-00-26 (Washington, D.C.: Oct. 15, 1999). 

[12] 5 U.S.C. § 3318(a)

[13] For more information, see Pub. L. No. (108-271), July 7, 2004, and 
GAO, GAO: Additional Human Capital Flexibilities Are Needed, GAO-03-
1024T (Washington, D.C.: July 16, 2003). 

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