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September 3, 2004:

The Honorable George V. Voinovich:


Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia:

Committee on Governmental Affairs:

United States Senate:

Subject: Posthearing Questions Related to Assessing Progress in Human 
Capital Management:

Dear Chairman Voinovich:

On July 20, 2004, I testified before your Subcommittee on "Building the 
21ST Century:

Federal Workforce: Assessing Progress in Human Capital 
Management."[Footnote 1] This letter responds to your request that I 
provide answers to follow-up questions from you, Senator Akaka, and 
Senator Lautenberg. The questions and responses follow.

Questions from Senator Voinovich:

Congress and the President just authorized additional human capital 
flexibilities to assist GAO to attract and retain a high-performing 
work force. What lessons can other agencies learn from GAO's approach 
to building the case for these flexibilities?

A key reason GAO has sought additional human capital flexibilities is 
that while our people account for about 80 percent of our costs, they 
constitute 100 percent of our real assets. Without excellent human 
capital management, we run the risk of being unable to deliver what 
Congress and the nation expects of us. GAO's approach to building the 
case for flexibilities is appropriate for the rest of government. We 
have emphasized that in addressing their human capital challenges, 
agencies should first identify and make use of the flexibilities 
already available under existing laws and regulations and seek 
additional flexibilities only when necessary and based on sound 
business cases.[Footnote 2] We also have committed to an implementation 
approach that is based on employee involvement, transparency, clearly 
defined criteria, and monitoring and evaluation.

Leading by example, GAO based its recent requests for additional 
flexibilities on demonstrated business cases. In fiscal year 1999, we 
completed a self-assessment that profiled our human capital workforce 
and identified a number of serious challenges, including significant 
issues involving succession planning and imbalances in our structure, 
shape, and skills. To help address these challenges, we received from 
Congress several flexibilities, such as a 3-year authority to offer 
voluntary early retirement opportunities and voluntary separation 
payments, in the GAO Personnel Flexibilities Act of 2000. Collectively, 
these and other flexibilities were contributing factors in helping us 
begin to address skill gaps and other succession concerns, and hire 
more staff at the entry level.[Footnote 3] To help us continue to 
reshape the organization, we sought and received additional human 
capital flexibilities in GAO's recently enacted Human Capital Reform 
Act of 2004 (Human Capital II). In addition to providing GAO with 
permanent authority to offer early outs and buyouts, the act authorized 
additional flexibilities in the areas of annual pay adjustments, pay 
retention, and relocation benefits. We recognize that our 
transformation effort is a work in progress. Nevertheless, we will 
continue to share our lessons and experiences with others, and provide 
a range of tools and methodologies to "help others help themselves" to 
address their human capital challenges.

GAO identified the need for agencies to develop strategies to train its 
human resources workforce. Do you see the Chief Human Capital Officers' 
Council playing a significant role in addressing this need?

We have reported that educating agency managers and employees--
including human resources professionals--on the availability and use of 
human capital flexibilities is a key practice to ensure they are used 
most effectively.[Footnote 4] The Chief Human Capital Officers (CHCO) 
Council can play a key role in helping agencies develop strategies to 
train their human resources workforce. The council is to provide 
leadership, information, and advice to agencies as they develop and 
implement their human capital strategies and policies, as well as serve 
as a coordinating mechanism across the agencies. We have found that 
interagency councils, including the Chief Financial Officer and Chief 
Information Officer councils, have emerged as important leadership 
strategies to foster communication among agencies about key policies 
and practices, build a commitment to institutionalize them across the 
executive branch, and ensure consistent follow-through on this 
implementation.[Footnote 5]

In May 2003, we recommended that the Office of Personnel Management 
(OPM) work with and through the new CHCO Council to more thoroughly 
research, compile, and analyze information on the effective and 
innovative use of human capital flexibilities and more fully serve as a 
clearinghouse in sharing and distributing information on them.[Footnote 
6] We noted that sharing information about when, where, and how the 
broad range of flexibilities is being used, and should be used, could 
help agencies meet their human capital challenges. To provide this 
information and help educate agencies, OPM created the Chief Human 
Capital Officers Academy as part of the Council to educate the Officers 
about current human capital management issues and available 
flexibilities. The Academy has scheduled monthly training and 
discussion sessions with CHCOs throughout 2004. For example, in June 
2004 OPM hosted a symposium on these flexibilities for 230 human 
resources officials from over 30 federal agencies. These types of 
coordination and communication efforts can significantly help agencies 
train their human resources workforces.

OPM has asked for the authority to design new systems for federal law 
enforcement retirement, classification, and pay. OPM proposes to do so 
in consultation with employing agencies and with the concurrence of the 
Attorney General. What are your thoughts on this recommendation?

While we have not done a recent comprehensive review of federal law 
enforcement retirement, classification, and pay, our work and the work 
of others continues to show that agencies need and want greater 
leadership from OPM in helping them address their human capital 
challenges.[Footnote 7] OPM recognizes the importance of exerting a 
stronger and more visible leadership role. In addition, obtaining the 
concurrence of the Attorney General, as well as other stakeholders in 
federal law enforcement, is critical when developing such systems to 
help improve employees' confidence and belief in the fairness of the 
system. For example, our work shows that when reforming their 
performance management systems, public sector organizations in other 
countries consulted a wide range of employees and stakeholders early in 
the process, obtained direct feedback from them, and engaged employee 
unions or associations.

We have observed that we are fast approaching the point where "standard 
governmentwide" human capital policies and processes are neither 
standard nor governmentwide. We believe that human capital reform 
should avoid further fragmentation within the civil service, ensure 
reasonable consistency within the overall civilian workforce, and help 
maintain a reasonably level playing field among federal agencies in 
competing for talent.

Questions from Senator Akaka:

Which agencies have figured out how to optimize the use of workforce 
flexibilities to improve the federal hiring process and of those 
agencies, which ones use their agency specific authority instead of 
flexibilities available government-wide?

While we have not taken an inventory of all agencies' hiring practices, 
we reviewed the activities of five agencies: the U.S. Geological 
Survey, the U.S. Census Bureau, and the Department of the Army, as well 
as the Agricultural Research Service (ARS) and the Forest Service (FS), 
both of which are in the Department of Agriculture.[Footnote 8] We 
selected these agencies because, according to human resources directors 
and experts, they had taken actions to improve their hiring practices. 
We generally found that the changes these agencies implemented--
including, for example, improving job announcements to make them more 
informative and easier to read, and automating hiring processes to 
reduce hiring time, increase the number of job applicants, and better 
serve internal and external customers--are actions that all agencies 
have the authority to implement.

ARS and FS did have one unique authority, under a pilot project 
implemented from 1990 to 1998, to use the category rating process. As 
you know, this alternative rating and selection procedure can provide 
agency managers with a larger pool of qualified job candidates from 
which to select than numerical ranking and the "rule of three," while 
also protecting veterans' preference. Because evaluations of the pilots 
showed the category rating process to be effective, both ARS and FS 
received permanent legislative authority to use this flexibility 
beginning in October 1998,[Footnote 9] and Congress extended this 
authority governmentwide in the Homeland Security Act of 2002.[Footnote 

In 2002, GAO reported that some of the most effective flexibilities 
agencies can use to manage their workforce are work-life programs, such 
as alternative work schedules, child-care, and transit subsidies. Do 
you know of any new work-life programs that are being used in the 
private sector that could benefit the Federal government?

We have not conducted work with the private sector to determine whether 
companies are using any new work-life programs that federal agencies 
could adopt. As you note, we reported that according to more than 200 
managers, supervisors, human resources officials, and union 
representatives from across the federal government, work-life programs-
-such as alternative work schedules, child care assistance, and transit 
subsidies--were among the flexibilities deemed most effective in 
helping agencies to manage their workforce.[Footnote 11] More recently, 
we have reported on telework opportunities as being a key flexibility 
from the perspective of employees and a critical management tool for 
coping with potential disruptions in the workplace, including 
terrorism.[Footnote 12]

We also reported that agencies could make more frequent and effective 
use of the work-life programs and other flexibilities already available 
to them. We determined that agencies sometimes overlook the 
effectiveness of these tools in recruiting, retaining, and motivating 
staff.[Footnote 13] In addition, we identified significant barriers to 
their use, including:

* agencies' weak strategic human capital planning and inadequate 
funding due to competing priorities;

* managers' and supervisors' lack of awareness and knowledge of the 
flexibilities; and:

* managers' and supervisors' belief that approval processes to use 
specific flexibilities are often burdensome and time-consuming.

Generally speaking, as a first priority, it is important for agencies 
to assess and determine which human capital flexibilities are the most 
appropriate for managing their workforces. Then, they need to take 
concerted actions to overcome any barriers and implement these 
flexibilities effectively.

Questions from Senator Lautenberg:

1. How does the GAO plan to use its flexibilities for adjusting the 
rate of basic pay and enhanced annual leave for senior staff? How will 
these flexibilities be implemented and monitored to assure they are not 
abused by managers?

We are studying the implementation of the pay adjustment provision that 
would allow us to determine the amount of the current annual across-
the-board pay adjustment. This provision is designed, among other 
reasons, to afford additional flexibility to the Comptroller General to 
increase the funding for performance-based compensation. GAO has 
recently let a contract to help inform our decisionmaking on 
performance-based compensation and other matters.

Leading by example, we have adopted safeguards that help to ensure that 
our performance-based pay program is fair, effective, and credible:

* assure that the performance management system links to the strategic 
plan, related goals, and desired outcomes and results in meaningful 
distinctions in individual employee performance;

* involve employees, their representatives, and other stakeholders in 
the design of the system;

* assure that certain predecisional internal safeguards exist to help 
achieve the consistency, equity, nondiscrimination, and 
nonpoliticization of the performance management process and resulting 
pay process; and:

* assure reasonable transparency and appropriate accountability 
mechanisms in connection with the results of the performance management 

As you know, GAO also received the authority to put key officers and 
employees with less than 3 years of federal experience in the 6-hour 
leave category. GAO is drafting regulations, which will then be shared 
with managing directors and our Employee Advisory Council prior to 
initiating the formal notice and comment period for all employees.

GAO has reported that a key practice for effective use of human capital 
flexibilities is to build transparency and accountability into the 
system.[Footnote 14] The consistent application of policies and 
procedures helps to lessen employee fears because program criteria are 
well defined, documented, transparent, and applied the same way in 
similar situations. We plan to use this same approach as we implement 
and monitor this and other flexibilities we recently received from 

2. GAO's written statement notes that agency human capital offices 
often use "alternative service delivery (ASD)" in lieu of internal 
staff. Is ASD a euphemism for contracted-out work?

Our work noted that selected agencies are using a variety of 
alternative service delivery options, in addition to contracting with 
the private sector, to address a wide range of human capital 
activities.[Footnote 15] ASD is the use of other than internal staff to 
provide a service or to deliver a product. Public sector providers are 
one of the primary ASD options agencies are using to accomplish 
traditional human capital service delivery, such as employee assistance 
programs, as well as training and advisory services. For example, some 
agencies enter into reimbursable agreements with other agencies that 
provide the necessary services. Another ASD option is to enter into 
partnerships--voluntary alliances that do not necessarily involve the 
exchange of funds. For example, the Census Bureau's Partnership and 
Data Services program established partnerships with national, state, 
and local organizations to recruit census takers during Census 2000. 
These examples indicate that informing agencies about effective ways 
ASD has been used to date can encourage human capital offices to 
continue thinking more broadly than just contracting with the private 
sector to cost-effectively obtain a range of needed services.

Use of ASD by at least one agency included functions like 
classification appeals and administrative investigations. Does GAO 
believe these are appropriate functions for contractor personnel? Where 
should the line be drawn between what are and what aren't inherent 
government functions in human capital work?

While we did not take a position in our report on the appropriateness 
of using ASD for various human capital activities, we do think there 
are opportunities to use contractor personnel to conduct at least some 
of the activities involved in functions such as classification appeals 
and administrative investigations. For example, contractors might 
conduct research or interviews to support the investigations. However, 
it is more appropriate to have federal employees conduct other 
activities involved in these functions, such as the final appeals 

In terms of defining what are inherently governmental human capital 
functions that should not be performed by contractor personnel, the 
April 2002 final report of the Commercial Activities Panel, which was 
chaired by GAO and tasked with determining ways to improve the 
government's sourcing decisions, offers some guidance.[Footnote 16] The 
panel recognized there is widespread consensus that certain functions 
should be performed by federal workers, but also acknowledged the 
difficulty in precisely defining what should be considered "inherently 
governmental." The panel considered guidance from the Office of 
Management and Budget (OMB) that provides agencies a framework for 
defining these functions,[Footnote 17] as well as information obtained 
under the Federal Activities Inventory Reform Act on commercial work 
being performed by the government. The group then concluded that 
federal employees should conduct certain activities, such as 
establishing policy or regulations, enforcing these regulations, and 
adjudicating disputes, among other things.

In addition, the National Academy of Public Administration offers a 
more specific definition of inherently governmental human capital 
functions, which includes:[Footnote 18]

* Decision making on matters concerning human capital. The final 
determination on selecting, hiring, promoting, rewarding, punishing, 
and removing employees must be done by federal employees. A line 
manager may exercise final determinations with human resources, in 
house or outsourced, serving as a consultant to the responsible 

* Human capital policy determination at the agency level. Overall human 
capital policy must be made by agency staff and reflect federal law and 
regulation as well as agency values and priorities.

* Setting performance standards. Agency managers must enact standards 
and make final judgment as to compliance.

* Contract management and oversight. Qualified and knowledgeable human 
capital professionals must be used to ensure that outsourced providers 
deliver high-quality service at a reasonable cost.

3. Is GAO consulting its employee organizations in implementing its new 
human capital tools and flexibilities?

The Comptroller General and other GAO executives engaged in a broad 
range of outreach and consultation activities with GAO staff on the 
Human Capital II legislation as it was being developed. GAO will 
continue to solicit input from employees and incorporate their views as 
appropriate as part of the implementation process.

4. I believe there may be a federal agency that has an employee 
performance evaluation system with only two ratings: pass or fail. The 
same agency has an employee award system that is totally delinked from 
employee performance evaluations. Doesn't such a system:

* Create a large incentive for favoritism in making awards, since they 
are not linked to any objective performance measure?

* Create a disincentive to quality work by employees?

* Limit managers' ability to recognize and reward outstanding 

Instead of allowing each agency to create its own performance 
management system, should the federal government return to a uniform 
multi-level (e.g., 5) performance evaluation system?

While agencies need to develop and effectively implement the human 
capital approaches that best meet their needs, resources, context, and 
authorities, we are concerned that a pass/fail system does not provide 
enough meaningful information and dispersion in ratings to recognize 
and reward top performance, help everyone attain their maximum 
potential, and deal with poor performers. Furthermore, we identified a 
set of practices leading public sector organizations both here and 
abroad have used for effective performance management, and among these 
practices is to make meaningful distinctions in performance.[Footnote 
19] We believe that an agency can use this set of practices to 
demonstrate that it has a performance management system in place that 
provides the objective and fact-based information that is needed to 
reward top performers and the necessary information and documentation 
to deal with poor performers.

As for a uniform performance management system across agencies, OPM 
recognizes that agencies' approaches will depend on their specific 
situations. For example, agencies must have, at least four, but no more 
than five rating levels, among other things, in designing their new 
performance-based senior executive performance management systems 
under the July 2004 OPM interim final regulations. Once OPM certifies 
and OMB concurs that their performance managements systems, as designed 
and applied, make meaningful distinctions based on relative 
performance, agencies can then raise the pay cap for their senior 
executives.[Footnote 20] In addition, we reported that selected 
personnel demonstration projects took different approaches in 
translating individual employee performance ratings into pay increases 
and awards.[Footnote 21] These different approaches were intended to 
enhance the success of the pay-for-performance systems because the 
systems were designed and implemented to meet the demonstration 
projects' unique cultural and organizational needs.

For additional information on our work on strategic human capital 
management, please contact me or Eileen Larence on (202) 512-6806 or at or

Sincerely yours,

Signed by: 

J. Christopher Mihm:

Managing Director, Strategic Issues:



[1] GAO, Human Capital: Building on the Current Momentum to Transform 
the Federal Government, GAO-04-976T (Washington, D.C.: July 20, 2004).

[2] GAO, Managing for Results: Using Strategic Human Capital Management 
to Drive Transformational Change, GAO-02-940T (Washington, D.C.: July 
15, 2002).

[3] GAO, GAO: Transformation, Challenges, and Opportunities, GAO-03-
1167T (Washington, D.C.: Sept. 16, 2003).

[4] GAO, Human Capital: Effective Use of Flexibilities Can Assist 
Agencies in Managing Their Workforces, GAO-03-2 (Washington, D.C.: Dec. 
6, 2002).

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

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

[7] GAO, Major Management Challenges and Program Risks: Office of 
Personnel Management, GAO-03-115 (Washington, D.C.: January 2003).

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

[9] Section 749 of Pub. L. No. 105-277 (Oct. 21, 1998).

[10] Section 1312 of Pub. L. No. 107-296 (Nov. 25, 2002).

[11] GAO-03-2.

[12] GAO, Human Capital: Key Practices to Increasing Federal Telework, 
GAO-04-950T (Washington, D.C.: July 8, 2004).

[13] GAO, Securities and Exchange Commission: Human Capital Challenges 
Require Management Attention, GAO-01-947 (Washington, D.C.: Sept. 17, 

[14] GAO-03-2.

[15] GAO, Human Capital: Selected Agencies' Use of Alternative Service 
Delivery Options for Human Capital Activities, GAO-04-679 (Washington, 
D.C.: June 25, 2004). 

[16] Improving the Sourcing Decisions of the Government, Commercial 
Activities Panel, April 30, 2002. The panel, convened by GAO, consisted 
of representatives from agencies, federal labor unions, and private 
industry, as well as other individuals with expertise in the area.

[17] Office of Management and Budget Directive 92-1.

[18] National Academy of Public Administration, Alternative Service 
Delivery: A Viable Strategy for Federal Government Human Resources 
Management (Washington, D.C.: November 1997).

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

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

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