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Testimony:

Before the Subcommittee on Civil Service and Agency Organization, 
Committee on Government Reform, House of Representatives:

For Release on Delivery Expected at 2:00 p.m. EDT Wednesday, July 16, 
2003:

GAO:

Additional Human Capital Flexibilities Are Needed:

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

GAO-03-1024T:

GAO Highlights: 

Highlights of GAO-03-1024T, a testimony before the Subcommittee on 
Civil Service and Agency Organization, Committee on Government Reform, 
House of Representatives

Why GAO Did This Study:

The Subcommittee seeks GAO’s views on its latest human capital 
proposal that is slated to be introduced as a bill entitled the GAO 
Human Capital Reform Act of 2003. 

What GAO Found:

As an arm of the legislative branch, GAO exists to support the 
Congress in meeting its constitutional responsibilities and to help 
improve the performance and ensure the accountability of the federal 
government for the American people. Unlike many executive branch 
agencies, which have either recently received or are just requesting 
new broad-based human capital tools and flexibilities, GAO has had 
certain human capital tools and flexibilities for over two decades. 
GAO’s latest proposal combines diverse initiatives that, collectively, 
should further GAO’s ability to enhance its performance, assure its 
accountability, and help ensure that it can attract, retain, motivate, 
and reward a top-quality and high-performing workforce currently and 
in future years. 

Specifically, GAO is requesting that the Congress (1) make permanent 
GAO’s 3-year authority to offer early outs and buyouts, (2) allow GAO 
to set its own annual pay adjustment system separate from the 
executive branch, (3) permit GAO to set the pay of an employee demoted 
as a result of workforce restructuring or reclassification to keep 
his/her basic pay but to set future increases consistent with the new 
position’s pay parameters, (4) provide authority to reimburse 
employees for some relocation expenses when that transfer has some 
benefit to GAO but does not meet the legal requirements for 
reimbursement, (5) provide authority to place upper-level hires with 
fewer than 3 years of federal experience in the 6-hour leave category, 
(6) authorize an executive exchange program with the private sector, 
and (7) change GAO’s legal name from the “General Accounting Office” 
to the “Government Accountability Office.”

GAO has used the narrowly tailored flexibilities granted by the 
Congress previously in Public Law 106-303, the GAO Personnel 
Flexibilities Act, responsibly, prudently, and strategically. GAO 
believes that it is vitally important to its future to continue 
modernizing and updating its human capital policies and system in 
light of the changing environment and anticipated challenges ahead. 
GAO’s proposal represents a logical incremental advancement in 
modernizing GAO’s human capital policies. Based on employee feedback, 
there is little or no concern relating to most of the proposal’s 
provisions. Although some elements of GAO’s initial straw proposal 
were controversial (e.g., GAO’s pay adjustment provision), the 
Comptroller General has made a number of changes, clarifications, and 
commitments to address employee concerns. While GAO believes that some 
employees remain concerned about the pay adjustment provision, GAO 
also believes that employee concerns have been reduced considerably 
due to the clarifications, changes, and commitments the Comptroller 
General has made. Given GAO’s human capital infrastructure and unique 
role in leading by example in major management areas, the rest of the 
federal government can benefit from GAO’s pay system experience. 

What GAO Recommends: 

GAO believes that its proposal is well reasoned and reasonable. 
Although GAO’s request for authority to adjust its annual pay system 
separate from the executive branch appears broad based, there are 
compelling reasons why GAO ought to be given this authority. These 
include the fact that GAO already has a hybrid pay system established 
by the authority the Congress granted it over two decades ago, the 
proposed authority is not radical if viewed in the light of 
authorities already granted and requested by other agencies, and GAO 
already has a number of key systems and safeguards in place and has 
plans to build in additional safeguards if granted the authority. 

GAO has conducted extensive external and internal outreach efforts on 
its latest human capital proposal. GAO respectfully requests the 
Subcommittee’s support and prompt passage by the Congress.

www.gao.gov/cgi-bin/getrpt?GAO-03-1024T.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Sallyanne Harper at 
(202) 512-5800 or harpers@gao.gov.

[End of section]

Madam Chairwoman and Members of the Subcommittee:

I am pleased to be here today to discuss GAO's latest human capital 
proposal. Chairwoman Davis, we at GAO appreciate your support of our 
proposal and your leadership in seeking additional sponsors for the 
bill you plan to introduce, the GAO Human Capital Reform Act of 2003.

As I have testified on many occasions, strategic human capital 
management must be the centerpiece of any serious government 
transformation effort. A key component of this is modern, effective, 
and credible human capital policies, which are critical to the 
successful functioning of any enterprise, both public and private. As 
the Chief Executive Officer and primary steward of GAO, I am not just 
responsible for GAO's current economy, efficiency, and effectiveness, I 
am also responsible for ensuring that we are well positioned to serve 
our congressional clients, maximize our performance, and assure our 
accountability in the future.

With this important responsibility in mind, I asked this committee and 
others over 3 years ago to grant GAO certain additional narrowly 
tailored human capital authorities. In enacting Public Law 106-303, 
known as the GAO Personnel Flexibilities Act, the Congress granted GAO 
certain flexibilities, which we have used responsibly to help 
strategically reshape the organization in order to better support the 
Congress and the American people. After reviewing the range and limits 
of our existing administrative and legal authorities, I have concluded 
that we now need to seek from the Congress additional human capital 
flexibilities in order for GAO to: ensure quality service to the 
Congress; continue leading by example in the government transformation, 
in general, and human capital reform areas in particular; and continue 
to attract, retain, motivate, and reward a quality and high-performing 
workforce, both currently and in future years. We believe that our 
proposal is well reasoned and reasonable, especially if viewed in the 
light of authorities already granted and requested by other agencies 
and the extensive external and internal outreach efforts we have 
conducted. We also respectfully request your support and prompt passage 
by the Congress.

GAO: A Unique Agency with a Hybrid System:

As an arm of the legislative branch, GAO exists to support the 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. Today, GAO is a multidisciplinary 
professional services organization, comprised of about 3,250 employees, 
that conducts a wide range of financial and performance audits, program 
evaluations, management reviews, investigations, and legal services 
spanning a broad range of government programs and functions. GAO's work 
covers everything from the challenges of securing our homeland, to the 
demands of an information age, to emerging national security threats, 
and the complexities of globalization. We are committed to transforming 
how the federal government does business and to helping government 
agencies become organizations that are more results oriented and 
accountable to the public. We are also committed to leading by example 
in all major management areas.

Given GAO's role as a key provider of information and analyses to the 
Congress, maintaining the right mix of technical knowledge and subject 
matter expertise as well as general analytical skills is vital to 
achieving the agency's mission. Carrying out GAO's mission today is a 
multidisciplinary staff reflecting the diversity of knowledge and 
competencies needed to deliver a wide array of products and services to 
support the Congress. Our mission staff--at least 67 percent of whom 
have graduate degrees--hold degrees in a variety of academic 
disciplines, such as accounting, law, engineering, public 
administration, economics, and social and physical sciences. I am 
extremely proud of our GAO employees and the difference that they make 
for the Congress and the nation. They make GAO the world-class 
organization that it is, and I think it is fair to say that while they 
account for about 80 percent of our costs, they constitute 100 percent 
of our real assets.

Because of our unique role as an independent overseer of federal 
expenditures, fact finder, and honest broker, GAO has evolved into an 
agency with hybrid systems. This is particularly evident in GAO's 
personnel and performance management systems. Unlike many executive 
branch agencies, which have either recently received or are just 
requesting new broad-based human capital tools and flexibilities, GAO 
has had certain human capital tools and flexibilities for over two 
decades. As a result, we have been able to some extent to operate our 
personnel system with a degree of independence that most agencies in 
the executive branch do not have. For example, we are excepted from 
certain provisions of Title 5, which governs the competitive service, 
and we are not subject to Office of Personnel Management (OPM) 
oversight.

Until 1980, our personnel system was indistinguishable from those of 
executive branch agencies--that is, GAO was subject to the same laws, 
regulations, and policies as they were. However, with the expansion of 
GAO's role in congressional oversight of federal agencies and programs, 
concerns grew about the potential for conflicts of interest. Could GAO 
conduct independent and objective reviews of executive branch agencies, 
such as OPM, when these agencies had the authority to review GAO's 
internal personnel activities? As a result, GAO worked with the 
Congress to pass the GAO Personnel Act of 1980, the principal goal of 
which was to avoid potential conflicts by making GAO's personnel system 
more independent of the executive branch.

Along with this independence, the act gave GAO greater flexibility in 
hiring and managing its workforce. Among other things, it granted the 
Comptroller General authority to:

* appoint, promote, and assign employees without regard to Title 5 
requirements in these areas;

* set employees' pay without regard to the federal government's General 
Schedule (GS) pay system's classification standards and requirements; 
and:

* establish a merit pay system for appropriate officers and employees.

By excepting our agency from the above requirements, the GAO Personnel 
Act of 1980 allowed us to pursue some significant innovations in 
managing our people. One key innovation was the establishment of a 
"broad banding," or "pay banding," approach for classifying and paying 
our Analyst and Attorney workforce in 1989. This was coupled with the 
adoption of a pay for performance system for this portion of our 
workforce. Therefore, while other agencies are only now requesting the 
authority to establish broad banding and pay for performance systems, 
GAO has had almost 15 years of experience with such systems.

Although GAO's personnel and pay systems are not similar to those of 
many executive branch agencies, I must emphasize that in important 
ways, our human capital policies and programs are very much and will 
continue to remain similar to those of the larger federal community. 
GAO's current human capital proposal will not change our continued 
support for certain national goals (e.g., commitment to federal merit 
principles, protection from prohibited personnel practices, employee 
due process through a specially created entity--the Personnel Appeals 
Board (PAB), and application of veterans' preference consistent with 
its application in the executive branch for appointments and all 
appropriate reductions-in-force). Furthermore, our pay system is and 
will continue to be consistent with the statutory principle of equal 
pay for equal work while making pay distinctions on the basis of an 
individual's responsibilities and performance. In addition, we are 
covered and will remain covered by Title VII of the Civil Rights Act, 
which forbids employment discrimination. At GAO, we also emphasize 
opportunity and inclusiveness for a diverse workforce and have zero 
tolerance for discrimination of any kind. We have taken and will 
continue to take disciplinary action when it "will promote the 
efficiency of the service"--which for us includes such things as GAO's 
ability to do its work and accomplish its mission.

Although we are not subject to OPM oversight, we are nevertheless 
subject to the oversight of the Congress including our appropriations 
committees--the Senate Committee on Appropriations' Subcommittee on the 
Legislative Branch and the House Committee on Appropriations' 
Subcommittee on Legislative--and our oversight committees--the Senate 
Committee on Governmental Affairs and the House Committee on Government 
Reform. In addition, GAO's management actions are subject to the review 
of an independent five member board, the Personnel Appeals Board, which 
performs functions similar to those provided by the Merit Systems 
Protection Board for federal executive branch employees' personnel 
grievances. The Congress authorized the establishment of the PAB 
specifically for GAO in order to protect GAO's independence as an 
agency. As with other federal executive branch employees, our employees 
have the right to appeal certain kinds of management actions including 
removal, suspension for more than 14 days, reductions in pay or grade, 
furloughs of not more than 30 days, a prohibited personnel practice, an 
action involving prohibited discrimination, a prohibited political 
activity, a within-grade denial, unfair labor practices or other labor 
relations issue. However, they do so to the PAB rather than the MSPB.

While we currently do not have any bargaining units at GAO, our 
employees are free to join employee organizations, including unions. In 
addition, we engage in a range of ongoing communication and 
coordination efforts to empower our employees while tapping their 
ideas. For example, we regularly discuss a range of issues of mutual 
interest and concern with our democratically elected Employee Advisory 
Council (EAC). Chris Keisling, who is a Band III field office 
representative of the EAC, is testifying with me today. In addition, I 
consult regularly with our managing directors on issues of mutual 
interest and concern. In that spirit, I will consult with the managing 
directors and the EAC before implementing the provisions related to our 
human capital proposal. As we did with the flexibilities granted it 
under Public Law 106-303, the GAO Personnel Flexibilities Act, we will 
implement the authorities granted under this provision of our proposal 
only after issuing draft regulations and providing all employees notice 
and an opportunity for comment. Specifically, for the authorities 
granted to us under Public Law 106-303, we posted the draft regulations 
on our internal Web site and sent a notice to all GAO staff advising 
them of the draft regulations and seeking their comments.

Key Elements of GAO's Proposal:

GAO's proposal combines diverse initiatives that, collectively, should 
further GAO's ability to enhance our performance, assure our 
accountability, and help ensure that we can attract, retain, motivate, 
and reward a top quality and high-performing workforce currently and in 
future years. These initiatives should also have the benefit of helping 
guide other agencies in their human capital transformation efforts. 
Specifically, we are requesting that the Congress provide us the 
following additional human capital tools and flexibilities:

* make permanent GAO's 3-year authority to offer voluntary early 
retirement and voluntary separation payments;

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

* permit GAO to set the pay of an employee demoted as a result of 
workforce restructuring or reclassification at his or her current rate 
with no automatic annual increase to basic pay until his or her salary 
is less than the maximum rate of their new position;

* provide authority in appropriate circumstances to reimburse employees 
for some relocation expenses when that transfer does not meet current 
legal requirements for entitlement to reimbursement but still benefits 
GAO;

* provide authority to put upper-level hires with less than 3 years of 
federal experience in the 6-hour leave category;

* authorize an executive exchange program with private sector 
organizations working in areas of mutual concern and involving areas in 
which GAO has a supply-demand imbalance; and:

* change GAO's legal name from the "General Accounting Office" to the 
"Government Accountability Office.":

I will go into more detail later in my testimony on the details and 
rationale for each of these proposals.

Process for Developing the Proposal:

In developing our proposal, we used a phased approach that involved (1) 
developing a straw proposal, (2) vetting the straw proposal broadly 
both externally and internally, and (3) making appropriate adjustments 
based on comments and concerns raised during the vetting process. As we 
have previously testified, many of the management tools and 
flexibilities we needed to pursue modern human capital management 
approaches are already available to us and we have used them. We have 
chosen to come to the Congress for legislation only where the tools and 
flexibilities we have were inadequate for addressing the challenges we 
faced. For example, the Congress enacted Public Law 106-303 to provide 
us with certain narrowly tailored flexibilities we needed to reshape 
our workforce and establish senior-level technical positions in 
critical areas. These flexibilities were needed to help GAO address the 
past decade's dramatic downsizing (approximately 40 percent from 1992 
through 1997) combined with a significant increase in the retirement-
eligible workforce that jeopardized our ability to perform our mission 
in the years ahead.

In developing our preliminary proposal, we gathered suggestions for 
addressing GAO's human capital challenges as well as challenges faced 
by the rest of the federal government, discussed and debated them 
internally, and compiled a preliminary list of proposals. We received a 
number of viable proposals that we separated into two groups: (1) 
proposals that would be more applicable government-wide and (2) 
proposals GAO should undertake. I had our Office of General Counsel 
review the proposals GAO should undertake to determine whether we 
needed to seek legislative authority to implement them or whether I 
could implement them under the Comptroller General's existing 
authority.

Mindful of the need to keep the Congress appropriately informed, my 
staff and I began our outreach to GAO's appropriations and oversight 
committees on the need for additional human capital flexibilities 
beginning late last year. In early spring of this year, we shared with 
these committees a confidential draft of a preliminary draft proposal. 
We also advised them that we planned to conduct a broad range of 
outreach and consultation on the proposal with our employees and other 
interested parties and that we would send them our revised legislative 
proposal at a later date. We conducted an extensive outreach and 
consultation effort with members of the Congress, including chairmen 
and ranking minority members of our appropriations and oversight 
committees and a number of local delegation members; congressional 
staff; the Director of OPM; the Deputy Director for Management of the 
Office of Management and Budget; public sector employee associations 
and unions; and various "good government" organizations.

Within GAO, members of the Executive Committee (EC), which includes our 
Chief Operating Officer, our General Counsel, our Chief Mission Support 
Officer and me, engaged in an extensive and unprecedented range of 
outreach and consultation with GAO employees. This outreach included 
numerous discussions with our managing directors, who manage most of 
GAO's workforce, and members of the EAC.

The EAC is an important source of input and a key communications link 
between executive management and the constituent groups its members 
represent. Comprising employees who represent a cross-section of the 
agency, the EAC meets at least quarterly with me and members of our 
senior executive team. 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.

I have also used my periodic "CG chats," closed circuit televised 
broadcasts to all GAO employees, as a means of explaining our proposal 
and responding to staff concerns and questions. Specifically, I have 
held two televised chats to inform GAO staff about the proposal. One of 
these chats was conducted in the form of a general listening session, 
open to all headquarters and field office staff, featuring questions 
from members of the EAC and field office employees. I have also 
discussed the proposal with the Band IIs (GS-13-14 equivalents) in 
sessions held in April 2003, and with our Senior Executive Service 
(SES) and Senior Level members at our May off-site meeting. In addition 
to my CG chats, I have personally held a number of listening sessions, 
including a session with members of our Office of General Counsel, two 
sessions with our administrative support staff, and sessions with staff 
in several field offices. Furthermore, the Chief Operating Officer 
represented me in a listening session with Band I field office 
personnel. Finally, I have also personally received and considered a 
number of E-mails, notes, and verbal comments on the human capital 
proposal.

I would like to point out to others seeking human capital flexibilities 
that the outreach process, while necessary, is indeed time-consuming 
and requires real and persistent commitment on the part of an agency's 
top management team. In order for the process to work effectively, it 
also requires an ongoing education and dialogue process that will, at 
times, involve candid, yet constructive, discussion between management 
and employees. This is, however, both necessary and appropriate as part 
of the overall change management process. To facilitate the education 
process on the proposal, we posted materials on GAO's internal website, 
including Questions and Answers developed in response to employees' 
questions and concerns, for all employees to review. Unfortunately, 
others who have sought and are seeking additional human capital 
flexibilities have not employed such an extensive outreach process.

Nature of GAO Employee Concerns:

Based on feedback from GAO employees, there is little or no concern 
relating to most of the provisions in our proposal. There has been 
significant concern expressed over GAO's proposal to decouple GAO's pay 
system from that of the executive branch. Some concerns have also been 
expressed regarding the pay retention provision and the proposed name 
change. As addressed below, we do believe, however, that these employee 
concerns, have been reduced considerably due to the clarifications, 
changes, and commitments resulting from our extensive outreach and 
consultation effort.

On the basis of various forms of GAO employee feedback, it is not 
surprising, since pay is important to all employees, that the provision 
that has caused the most stir within GAO has been the pay adjustment 
provision. Fundamentally, some of our employees would prefer to remain 
with the executive branch's GS system for various types of pay 
increases. There are others close to retirement who are concerned with 
their "high three" and how the modified pay system, when fully 
implemented, might affect permanent base pay, which is the key 
component of their retirement annuity computation. Overall, there is a 
great desire on the part of GAO employees to know specifically how this 
authority would be implemented.

It is important to note that, even in the best of circumstances, it is 
difficult to garner a broad-based consensus of employee support for any 
major pay system changes. While it is my impression, based on employee 
feedback, that we have made significant strides in allaying the 
significant initial concerns expressed by employees regarding the pay 
adjustment provision, I believe that some of these concerns will remain 
throughout implementation. In addition, some can never be resolved 
because they involve philosophical differences or personal interest 
considerations on behalf of individual GAO employees.

GAO's history with pay banding certainly is illustrative of how 
difficult it is for an organization to allay employee fears even in the 
face of obvious benefits. While history has proven that an overwhelming 
majority of GAO employees have benefited from GAO's decision to migrate 
our Analysts and Attorneys into pay banding and pay for performance 
systems, there was significant opposition by GAO employees regarding 
the decision to move into these systems. The experience of the 
executive branch's pay demonstration projects involving federal science 
and technology laboratories shows that employee support at the 
beginning of the pay demonstration projects ranged from 34 percent to 
63 percent. In fact, OPM reports that it takes about 5 years to get 
support from two-thirds of employees with managers generally supporting 
demonstrations at a higher rate than employees.

Following the pay adjustment provision but a distant second in terms of 
employee concern, has been the pay reclassification provision, which 
would allow GAO employees demoted as a result of workforce 
restructuring or reclassification to keep their basic pay rates; 
however, future pay increases would be set consistent with the new 
positions' pay parameters. Currently, employees subject to a reduction-
in-force or reclassification can be paid at a rate that exceeds the 
value of their duties for an extended period.

A distant third in terms of employee concern is the proposed name 
change from the "General Accounting Office' to the "Government 
Accountability Office," which would allow the agency's title to more 
accurately reflect its mission, core values, and work. My sense is that 
some GAO employees who have been with GAO for many years have grown 
comfortable with the name and may prefer to keep it. At the same time, 
I believe that a significant majority of our employees support the 
proposed name change. Importantly, all of our external advisory groups, 
including the Comptroller General's Advisory Council, consisting of 
distinguished individuals from the public and private sectors, and the 
Comptroller General's Educators Advisory Council, consisting of 
distinguished individuals from the academic community, and a variety of 
"good government" groups strongly support the proposed name change.

Changes Made in Response to Employee Feedback:

The members of the EC and I took our employees' feedback seriously and 
have seriously considered their concerns. Key considerations in our 
decision making were our institutional responsibility as leaders and 
stewards of GAO and the overwhelming support expressed through 
anonymous balloting by our senior executives, who also serve as leaders 
and stewards for GAO, for proceeding with all of the provisions of our 
human capital proposal, including the pay adjustment provision. 
Specifically, in a recent confidential electronic balloting of our 
senior executives, support for each element of our proposal ranged from 
over 2 to 1 to unanimous, depending on the provision. Support for the 
proposed pay adjustment provision was over 3 to 1, and support for the 
proposed pay protection provision was over 4 to 1. Given this and other 
considerations, ultimately, we decided to proceed with the proposal but 
adopted a number of the suggestions made by employees in these 
sessions, including several relating to the proposal to decouple GAO 
annual pay adjustments from those applicable to many executive branch 
agencies.

A key suggestion adopted include a minimum 2-year transition period for 
ensuring the smooth implementation of the pay provisions which would 
also allow time for developing appropriate methodologies and issuing 
regulations for notice and comment by all employees. Another key 
suggestion adopted was the commitment to guarantee annual across the 
board purchase power protection and to address locality pay 
considerations to all employees rated as performing at a satisfactory 
level or above (i.e., meeting expectations or above) absent 
extraordinary economic circumstances or severe budgetary constraints. 
We have chosen to implement this guarantee through a future GAO Order 
rather than through legislative language because prior "pay protection" 
guarantees relating to pay banding made by my predecessor, Comptroller 
General Charles A. Bowsher, used this means effectively to document and 
operationalize that guarantee. I have committed to our employees that I 
would include this guarantee in my statement here today so that it 
could be included as part of the legislative record. Additional 
safeguards relating to our pay proposal are set forth below.

The following represents additional information regarding our specific 
proposal.

Voluntary Early Retirement and Separation Incentive Payment 
Authorities:

Section 2 of our proposal would make permanent the authority of GAO 
under section 1 and 2 of Public Law 106-303, the GAO Personnel 
Flexibilities Act of 2000, to offer voluntary early retirements 
(commonly termed "early outs") and voluntary separation payments 
(commonly termed "buyouts") to certain GAO employees when necessary to 
realign GAO's workforce in order to meet budgetary or mission needs, 
correct skill imbalances, or reduce high-grade positions. We believe 
that we have behaved responsibly in exercising the flexibilities that 
the Congress granted us and deserve a permanent continuation of these 
authorities. In addition, the two flexibilities which we would like to 
be made permanent are narrowly drawn and voluntary in nature, since the 
employees have the right to decide if they are interested in being 
considered for the benefits. Further, the provisions also have built in 
limits: no more than 10 percent of the workforce in any one year can be 
given early outs and no more than 5 percent can be given buyouts.

GAO's transformation effort is a work in progress, and for that reason, 
the agency is seeking legislation to make the voluntary early 
retirement provision in section 1 of the law permanent. While the 
overall number of employees electing early retirement has been 
relatively small, GAO believes that careful use of voluntary early 
retirement has been an important tool in incrementally improving the 
agency's overall human capital profile. Each separation has freed 
resources for other uses, enabling GAO to fill an entry-level position 
or to fill a position that will reduce a skill gap or address other 
succession concerns. Similarly, we are seeking legislation to make 
section 2--authorizing the payment of voluntary separation incentives-
-permanent. Although GAO has not yet used its buyout authority and has 
no plans to do so in the foreseeable future, we are seeking to retain 
this flexibility. The continuation of this provision maximizes the 
options available to the agency to deal with future circumstances, 
which cannot be reasonably anticipated at this time. Importantly, this 
provision seems fully appropriate since the Homeland Security Act of 
2002 provides most federal agencies with permanent early out and buyout 
authority.

Public Law 106-303 required that GAO perform an assessment of the 
exercise of the authorities provided under that law, which included the 
authority for the Comptroller General to provide voluntary early 
retirement and voluntary separation incentive payments. With your 
permission, I would like to submit the assessment entitled Assessment 
of Public Law 106-303: The Role of Personnel Flexibilities in 
Strengthening GAO's Human Capital, issued on June 27, 2003, for the 
record. I will now highlight for you our observations from that 
assessment on voluntary early retirement and buyouts.

Voluntary Early Retirement:

Public Law 106-303 also allows the Comptroller General to offer 
voluntary early retirement to up to 10 percent of the workforce when 
necessary or appropriate to realign the workforce to address budgetary 
or mission constraints; correct skill imbalances; or reduce high-grade, 
supervisory, or managerial positions. This flexibility represents a 
proactive use of early retirement to shape the workforce to prevent or 
ameliorate future problems. GAO Order 2931.1, Voluntary Early 
Retirement, containing the agency's final regulations, was issued in 
April 2001. Under the regulations, each time the Comptroller General 
approves a voluntary early retirement opportunity, he establishes the 
categories of employees who are eligible to apply. These categories are 
based on the need to ensure that those employees who are eligible to 
request voluntary early retirement are those whose separations are 
consistent with one or more of the three reasons for which the 
Comptroller General may authorize early retirements. Pursuant to GAO's 
regulations, these categories are defined in terms of one or more of 
the following criteria:

* organizational unit or subunits,

* occupational series,

* grade or band level,

* skill or knowledge requirements,

* performance appraisal average,

* geographic location, or:

* other similar factors that the Comptroller General deems necessary 
and appropriate.

Since it is essential that GAO retain employees with critical skills as 
well as its highest performers, certain categories of employees have 
been ineligible under the criteria. Some examples of ineligible 
categories are employees receiving retention allowances because of 
their unusually high or unique qualifications; economists, because of 
the difficulty that the agency has experienced in recruiting them; and 
staff in the information technology area. In addition, employees with 
performance appraisal averages above a specified level have not been 
eligible under the criteria.

To give the fullest consideration to all interested employees, however, 
any employee may apply for consideration when an early retirement 
opportunity is announced, even if he or she does not meet the stated 
criteria. Furthermore, under our order, the Comptroller General may 
authorize early retirements for these applicants on the basis of the 
facts and circumstances of each case. The Comptroller General or his EC 
designee considers each applicant and makes final decisions based on 
GAO's institutional needs. Only employees whose release is consistent 
with the law and GAO's objective in allowing early retirement are 
authorized to retire early. In some cases, this has meant that an 
employee's request must be denied.

GAO held its first voluntary early retirement opportunity in July 2001. 
Employees who were approved for early retirement were required to 
separate in the first quarter of fiscal 2002. As required by the act, 
information on the fiscal 2002 early retirements was reported in an 
appendix to our 2002 Performance and Accountability Report. Another 
voluntary early retirement opportunity was authorized in fiscal 2003, 
and employees were required to separate by March 14, 2003. In 
anticipation of the 3-year sunset on our authority to provide voluntary 
early retirements, I have recently announced a final voluntary early 
retirement opportunity under our current authority. Table 1 provides 
the data on the number of employees separated by voluntary early 
retirement as of May 30, 2003.

Table 1: Summary Data on Voluntary Early Retirements:

Applications/Status: of applications: Total applications submitted; 
Fiscal 2002: Number: 78; Fiscal 2002: Percentage of total: 100.0; 
Fiscal 2003: Number: 39; Fiscal 2003: Percentage of total: 
100.0; Totals: Number: 117; Totals: Percentage of total: 
100.0.

Applications/Status: of applications: Approved applications; Fiscal 
2002: Number: 72; Fiscal 2002: Percentage of total: 92.3; 
Fiscal 2003: Number: 37; Fiscal 2003: Percentage of total: 94.8; 
Totals: Number: 109; Totals: Percentage of total: 93.1.

Applications/Status: of applications: Disapproved applications; Fiscal 
2002: Number: 6; Fiscal 2002: Percentage of total: 7.7; Fiscal 
2003: Number: 2; Fiscal 2003: Percentage of total: 5.1; 
Totals: Number: 8; Totals: Percentage of total: 6.8.

Applications/Status: of applications: Approved applications withdrawn 
by employees; Fiscal 2002: Number: 18; Fiscal 2002: Percentage of 
total: 23.0; Fiscal 2003: Number: 12; Fiscal 2003: Percentage 
of total: 30.7; Totals: Number: 30; Totals: Percentage of 
total: 25.6.

Applications/Status: of applications: Applicants separated by 
voluntary early retirement; Fiscal 2002: Number: 54; Fiscal 2002: 
Percentage of total: 69.3; Fiscal 2003: Number: 25; Fiscal 
2003: Percentage of total: 64.1; Totals: Number: 79; Totals: 
Percentage of total: 67.5.

Source: GAO.

[End of table]

As you can see from the table, of the 79 employees who separated from 
GAO through voluntary early retirement, 66, or 83.5 percent, were high-
grade, supervisory, or managerial employees. High-grade, supervisory, 
or managerial employees are those who are GS-13s or above, if covered 
by GAO's GS system; Band IIs or above, if covered by GAO's banded 
systems for Analysts and Attorneys; or in any position in GAO's SES or 
Senior-Level system.

In recommending that GAO's voluntary early out authority be made 
permanent, I would like to point to our progress in changing the 
overall shape of the organization. The 1990s were a difficult period 
for ensuring that GAO's workforce would remain appropriately sized, 
shaped, and skilled to meet client demands and agency needs. Severe 
downsizing of the workforce, including a suspension of most hiring from 
1992 through 1997, and constrained investments in such areas as 
training, performance incentives, rewards, and enabling technology left 
GAO with a range of human capital and operational challenges to 
address. Over 3 years ago, when GAO sought additional human capital 
flexibilities, our workforce was sparse at the entry level and 
plentiful at the midlevel. We were concerned about our ability to 
support the Congress with experienced and knowledgeable staff over 
time, given the significant percentage of the agency's senior managers 
and analysts reaching retirement eligibility and the small number of 
entry-level employees who were training to replace more senior staff.

As illustrated in figure 1, by the end of fiscal year 2002, GAO had 
almost a 74 percent increase in the proportion of staff at the entry 
level (Band I) compared with fiscal year 1998. Also, the proportion of 
the agency's workforce at the midlevel (Band II) decreased by 16 
percent.

Figure 1: GAO's Human Capital Profile:

[See PDF for image]

[End of figure]

Voluntary Separation Payments:

In addition to authorizing voluntary early retirement for GAO 
employees, Public Law 106-303 permits the Comptroller General to offer 
voluntary separation incentive payments--buyouts--when necessary or 
appropriate to realign the workforce to meet budgetary constraints or 
mission needs; correct skill imbalances; or reduce high-grade, 
supervisory, or managerial positions. Under the act, up to 5 percent of 
employees could be offered such an incentive, subject to criteria 
established by the Comptroller General.

The act requires GAO to deposit into the U.S. Treasury an amount 
equivalent to 45 percent of the final annual basic salary of each 
employee to whom a buyout is paid. The deposit is in addition to the 
actual buyout amount, which can be up to $25,000 for an approved 
individual. Given the many demands on agency resources, these costs 
present a strong financial disincentive to use the provision if at all. 
GAO anticipates little, if any, use of this authority because of the 
associated costs. For this reason, as well as to avoid creating 
unrealistic employee expectations, GAO has not developed and issued 
agency regulations to implement this section of the act. Nevertheless, 
as stated earlier, it is prudent for us to seek the continuation of 
this provision because it maximizes the options available to the agency 
to deal with future circumstances. Since GAO is also eligible to 
request buyouts under the provisions of the Homeland Security Act, the 
agency will consider its options under this provision as well. However, 
under the Homeland Security Act, GAO would have to seek OPM approval of 
any buyouts, which raises serious independence concerns.

Annual Pay Setting Policy and Adjustments:

Section 3 and 4 of our proposal would provide GAO greater discretion in 
determining the annual across the board and locality pay increases for 
our employees. Under our proposal, GAO would have the discretion to set 
annual pay increases by taking into account alternative methodologies 
from those used by the executive branch and various other factors, such 
as extraordinary economic conditions or serious budgetary constraints. 
While the authority requested may initially appear to be broad based, 
there are compelling reasons why GAO ought to be given such authority. 
First, as I discussed at the beginning of my testimony, GAO is an 
agency within the legislative branch and already has a hybrid pay 
system established under the authority the Congress granted over two 
decades ago. Therefore, our proposal represents a natural evolution in 
GAO's pay for performance system. Second, GAO's proposal is not radical 
if viewed from the vantage point of the broad-based authority that has 
been granted the Department of Homeland Security (DHS) under the 
Homeland Security Act of 2002; agencies that the Congress has already 
granted the authority to develop their own pay systems; the authorities 
granted to various demonstration projects over the past two decades; 
and the authority Congress is currently contemplating providing the 
Department of Defense (DOD). Third, GAO already has a number of key 
safeguards and has plans to build additional safeguards into our 
modified pay system if granted this authority.

Our proposal seeks to take a constructive step in addressing what has 
been widely recognized as fundamental flaws in the federal government's 
approach to white-collar pay. These flaws and the need for reform have 
been addressed in more detail in OPM's April 2002 White Paper, A Fresh 
Start For Federal Pay: A Case for Modernization, and more recently the 
National Commission on the Public Service's January 2003 report on 
revitalizing the public service. The current federal pay and 
classification system was established over 60 years ago for a federal 
workforce that was made up largely of clerks performing routine tasks 
which were relatively simple to assess and measure. Today's federal 
workforce is composed of much higher graded and knowledge-based 
workers.

Although there have been attempts over the years to refine the system 
by enacting such legislation as the Federal Employees Pay Comparability 
Act (FEPCA) which sought to address, among other things, the issue of 
pay comparability with the nonfederal sector, the system still contains 
certain fundamental flaws. The current system emphasizes placing 
employees in a relative hierarchy of positions based on grade; is a 
"one size fits all approach" since it does not recognize changes in 
local market rates for different occupations; and is performance 
insensitive in that all employees are eligible for the automatic across 
the board pay increases regardless of their performance. Specifically, 
the annual across the board base pay increase, also commonly referred 
to as the cost of living adjustment (COLA) or the January Pay Increase 
which the President recommends and the Congress approves, provides a 
time driven annual raise keyed to the Employment Cost Index (ECI) to 
all employees regardless of performance. In certain geographic areas, 
employees receive a locality adjustment tied to the local labor 
markets. However, in calculating the locality adjustment, for example, 
it is my understanding that FEPCA requires the calculation of a single 
average, based on the dominant federal employer in an area, which does 
not sufficiently recognize the differences in pay rates for different 
occupations and skills. In view of the fact that today we are in a 
knowledge-based economy competing for the best knowledge workers in the 
job market, I believe that new approaches and methodologies are 
warranted. This is especially appropriate for GAO's highly educated and 
skilled workforce.

Our proposed pay adjustment provision along with the other provisions 
of GAO's human capital proposal are collectively designed to help GAO 
maintain a competitive advantage in attracting, motivating, retaining, 
and rewarding a high performing and top-quality workforce both 
currently and in future years. First, under our proposal, GAO would no 
longer be required to provide automatic pay increases to employees who 
are rated as performing at a below satisfactory level. Second, when the 
proposal is fully implemented, GAO would be able to allocate more of 
the funding--currently allocated for automatic across-the-board pay 
adjustments to all employees--to permanent base pay adjustments that 
would vary based on performance. In addition, our proposal would affect 
all GAO, non-wage grade employees, including the SES and Senior Level 
staff.

Ultimately, if GAO is granted this authority, all GAO employees who 
perform at a satisfactory level will receive an annual base pay 
adjustment composed of purchase power protection and locality based pay 
increases absent extraordinary economic circumstances or severe 
budgetary constraints. GAO will be able to develop and apply its own 
methodology for annual cost-of-living and locality pay adjustments. The 
locality pay increase would be based on compensation surveys conducted 
by GAO and which would be tailored to the nature, skills, and 
composition of GAO's workforce. The performance part of an employee's 
annual raise would depend on the level of the employee's performance 
and that employee's pay band. We estimate that at least 95 percent of 
the workforce will qualify for an additional performance-based 
increase. However, under this provision, employees who perform below a 
satisfactory level will not receive an annual increase of either type.

How GAO Plans to Use This Authority:

GAO's major non-SES pay groups include (1) Analysts and Attorneys which 
comprises the majority of our workforce and is our mission group, (2) 
the Professional Development Program staff (PDP) which is our entry 
level mission group, (3) the Administrative Professional Support Staff 
(APSS), which is our mission support group for the most part, and (4) 
Wage Grade employees who primarily operate our print plant. Each of 
these groups currently operate in a different pay system. Generally, 
our mission staff are all in pay bands whereby they currently receive 
the annual across-the-board base pay increase and locality pay increase 
similar to the GS pay system, along with performance-based annual 
increases that are based on merit. Generally, our mission support 
staff, with some exceptions, remain in a system similar to the GS pay 
system with its annual across-the-board pay increases, locality pay, 
quality step increases, and within grade increases. We are currently in 
the process of migrating the mission support staff into pay bands and a 
pay for performance system. Our Wage Grade staff will continue to be 
covered by the federal compensation system for trade, craft, and 
laboring employees. Because of the small number of employees and the 
nature of their work, we have no plans to apply the pay adjustment 
provision authority to this group.

I would like to point out the tables in appendices I through IV, which 
succinctly describe how GAO plans to operationalize our authority under 
our proposed annual pay adjustment provision over time.

GAO's Proposed Pay Authority Is Reasonable:

GAO's proposal for additional pay flexibility is reasonable in view of 
the authority the Congress has already granted DHS through the Homeland 
Security Act of 2002; the other agencies for whom the Congress has 
granted the authority to develop their own pay systems; the 
demonstration projects that OPM has authorized; and the authorities 
that other agencies in the executive branch are currently seeking 
(e.g., DOD).

While we are aware that the passage of the Homeland Security Act of 
2002 was not without its difficult moments, particularly with respect 
to the broad-based authorities granted the department, we are also 
aware that the process employed by DOD and certain of its human capital 
proposals are highly controversial. It is important to point out that 
GAO's proposal and proposed pay flexibilities pale in respect to those 
granted to the DHS and to those requested by the DOD in the Defense 
Transformation for the 21ST Century Act of 2003. Collectively, these 
two agencies represent almost 45 percent of the non-postal federal 
civilian workforce. Specifically, in November 2002, the Congress passed 
the Homeland Security Act of 2002, which created DHS and provided the 
department with significant flexibilities to design a modern human 
capital management system, which could have the potential, if properly 
developed, for application governmentwide. DOD's proposed National 
Security Personnel System (NSPS) would provide wide-ranging changes to 
its civilian personnel pay and performance management systems, 
collective bargaining, rightsizing, and a variety of other human 
capital areas. NSPS would enable DOD to develop and implement a 
consistent, DOD-wide civilian personnel system.

In addition to DHS, there are a number of federal agencies with 
authority for their own pay systems. Some of these agencies are, for 
example, the Congressional Budget Office, which is one of our sister 
agencies in the legislative branch; the Federal Aviation Administration 
(FAA); the Securities and Exchange Commission (SEC) ; and the Office of 
the Comptroller of the Currency (OCC) within the Department of the 
Treasury. When the Congress created the CBO in 1974, it granted that 
legislative branch agency significant flexibilities in the human 
capital area. For example, CBO has "at will" employment. In addition, 
CBO is not subject to the annual executive branch pay adjustments. 
Further, CBO has extensive flexibility regarding its pay system subject 
only to certain statutory annual compensation limits.

Furthermore, there are twelve executive branch demonstration projects 
involving pay for performance. These projects have taken different 
approaches to the sources of funding for salary increases that are tied 
to performance and not provided as entitlements. Many of the 
demonstration projects reduce or deny the annual across the board base 
pay increase for employees with unacceptable ratings (e.g., the 
Department of Navy's China Lake demonstration, DOD's Civil Acquisition 
Workforce demonstration, the Department of Air Force's Research 
Laboratory demonstration, and the Department of Navy's Research 
Laboratory demonstration, among others.) Others, including the National 
Institute of Standards and Technology and the Department of Commerce 
demonstration projects, deny both the annual across the board base pay 
increase and the locality pay adjustment for employees with 
unacceptable ratings.

Currently, this Congress is considering a NASA human capital proposal. 
This proposal would provide NASA with further flexibilities and 
authorities for attracting, retaining, developing, and reshaping a 
skilled workforce. These include a scholarship-for-service program; a 
streamlined hiring authority for certain scientific positions; larger 
and more flexible recruitment, relocation, and retention bonuses; 
noncompetitive conversions of term employees to permanent status; a 
more flexible critical pay authority; a more flexible limited-term 
appointment authority for the SES; and greater flexibility in 
determining annual leave accrual rate for new hires.

Safeguards Provided:

As we have testified, agencies should have modern, effective, credible, 
and as appropriate, validated performance management systems in place 
with adequate safeguards, including reasonable transparency and 
appropriate accountability mechanisms, to ensure fairness and prevent 
politicization and abuse. While GAO's transformation is a work in 
progress, we believe that we are in the lead compared to executive 
branch agencies in having the human capital infrastructure in place to 
provide such safeguards and implement a modified pay system that is 
more performance oriented. Specifically, for our Analyst pay group, we 
have gone through the first cycle of a validated performance management 
system that has adequate safeguards, including reasonable transparency 
and appropriate accountability mechanisms. We have learned from what 
has worked and what improvements can and should be made with respect to 
the first cycle. In fact, we have adopted many of the recommendations 
and suggestions of our managing directors and EAC and are now in the 
process of implementing these suggestions.

The following is an initial list of possible safeguards, developed at 
the request of Congressman Danny Davis, for Congress to consider to 
help ensure that any pay for performance systems in the government are 
fair, effective, and credible. GAO's current human capital 
infrastructure has most of these safeguards built in, and the others 
are in the process of being incorporated.

* 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.

* Ensure 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 the human capital offices and/or 
the offices of opportunity and inclusiveness or its equivalent in 
establishing and implementing 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 predominately made up of career officials 
who would consider the results of the performance appraisal process and 
other information in making final pay decisions).

* Assure reasonable transparency and appropriate accountability 
mechanisms in connection with the results of the performance management 
process (e.g., publish overall results of performance management and 
pay decisions while protecting individual confidentiality, and report 
periodically on internal assessments and employee survey results).

Transition Period:

We have provided a statutory period minimum to allow for a smooth 
implementation of the law as it applies to both our mission and mission 
support staff. Specifically, for our Analyst and Attorney communities, 
we plan to allow for at least a two-year period, during which they will 
continue to receive their annual across the board pay raise and their 
locality pay, if applicable, based on the amount set by the GS system. 
Once the proposal is fully implemented, the new across-the-board 
increase, which provides for inflation protection and locality pay 
where applicable, would be computed based on GAO compensation studies, 
and the performance-based merit pay would be provided based on an 
employee's performance.

For our APSS employees, the transition period of at least 2 years would 
allow for a smooth migration to the pay bands and the implementation of 
at least one performance cycle of a newly validated competency based 
performance appraisal system for that component of GAO's workforce. Our 
APSS employees are currently still in the GS system, but we are in the 
process of moving them into pay bands. We will allow time for the group 
to migrate to broad bands and to have at least one performance cycle 
under pay bands before moving it into the new pay system. Therefore, as 
with the analysts and attorneys, the administrative support staff will 
move into a hybrid pay system once they migrate to pay bands. Also, as 
with the analysts and attorneys, I have committed to providing them 
"pay protection." This guarantee would continue even after GAO's 
authority to adjust pay is fully implemented.

We have a small Wage Grade community of under 20 employees. As 
mentioned earlier, we do not contemplate having the pay adjustment 
provision apply to them.

"Pay Protection" Guarantee:

My predecessor, Comptroller General Charles A. Bowsher, provided the 
analysts and attorneys a "pay protection" guarantee at the time of 
their conversion to broad bands. This guarantee, later spelled out in a 
GAO order, provided that the analyst and attorneys rated as meeting 
expectations in all categories would fare at least as well under pay 
bands as under the GS system. This guarantee would not apply to 
employees who are promoted after conversion or demoted, and to new 
employees hired after the conversion. It is my understanding that this 
guarantee provided by my predecessor is unique to GAO and has generally 
not been applied by other agencies that have migrated their employees 
to pay bands.

Currently, 535 GAO employees are still covered by this "pay protection" 
guarantee, while less than 10 employees annually have their pay 
readjusted after the merit pay process. I have committed to GAO 
employees that even if we receive the new pay adjustment authority, I 
would still honor my predecessor's pay protection guarantee. In 
addition, our mission support staff will also receive this guarantee 
upon conversion to pay bands. This guarantee will continue through the 
implementation period for our new human capital authority.

Pay Retention:

Section 5 of our proposal would allow GAO not to provide any automatic 
increase in basic pay to an employee demoted as a result of workforce 
restructuring or reclassification at his or her current rate until his 
or her salary is less than the maximum rate of the new position. Under 
current law, the grade and pay retention provisions allow employees to 
continue to be paid at a rate that exceeds the value of the duties they 
are performing for an extended period. Specifically, employees who are 
demoted (e.g., incur a loss of grade or band) due to, among other 
things, reduction-in-force procedures or reclassification receive full 
statutory pay increases for 2 years and then receive 50 percent of the 
statutory pay increases until the pay of their new positions falls 
within the range of pay for those positions. We believe that this 
antiquated system is inconsistent with the merit principle that there 
should be equal pay for work of equal value.

In granting GAO this authority, we would be able to immediately place 
employees in the band or grade commensurate with their roles and 
responsibilities. It is important to note that we have a key safeguard-
-employees whose basic pay exceeds the maximum rate of the grade or 
band in which the employee is placed will not have their basic pay 
reduced. These employees, who would still be eligible to increase their 
overall pay through certain types of performance-based awards (e.g., 
incentive awards), would retain this rate until their basic pay is less 
than the maximum for their grade or band. As with all the provisions in 
our proposal, we will not implement this pay retention provision until 
we have consulted with the EAC and managing directors and have provided 
all GAO employees an opportunity for notice and comment on any 
regulations.

Relocation Expenses:

Section 6 would provide GAO the authority, in appropriate 
circumstances, to reimburse employees for some relocation expenses when 
transfers do not meet current legal requirements for entitlement to 
reimbursement but still benefit GAO. Under current law, employees who 
qualify for relocation benefits are entitled to full benefits; however, 
employees whose transfer may be of some benefit or value to the agency 
would not be eligible to receive any reimbursement. This provision 
would provide these employees some relief from the high cost of 
relocating while at the same time allowing GAO the flexibility to 
promulgate regulations in order to provide such relief. This authority 
has been previously granted to other agencies, including the FAA.

Leave for Upper Level Hires:

Section 7 of the proposal provides GAO the authority to provide 160 
hours (20 days) of annual leave to appropriate employees in high-grade, 
managerial or supervisory positions who have less than 3 years of 
federal service. This is narrowly tailored authority that would apply 
only to GAO and not to executive branch agencies. While it is been a 
long-standing tenet that all federal employees earn annual leave based 
on years of federal service, we believe that there is substantial merit 
in revisiting this in view of today's human capital environment and 
challenges. We have found that, in recruiting experienced mid-and 
upper-level hires, the loss of leave they would incur upon moving from 
the private to the federal sector is a major disincentive. For example, 
an individual, regardless of the level at which he enters first enters 
the federal workforce, is eligible to earn 4 hours of annual leave for 
each pay period and, therefore, could accrue a total of 104 hours (13 
days) annually so long as they do not use any of that leave during the 
year. This amount increases to 6 hours of annual leave after 3 years of 
federal service. By increasing the annual leave that certain newly 
hired officers and employees may earn, this provision is designed to 
help attract and retain highly skilled employees needed to best serve 
the Congress and the country.

Executive Exchange Program:

Section 8 would authorize GAO to establish an executive exchange 
program between GAO and private sector entities. Currently, GAO has the 
authority to conduct such an exchange with public entities and non 
profit organizations under the Intergovernmental Personnel Act; there 
is no such authority for private sector exchanges. Under this program, 
high-grade, managerial or supervisory employees from GAO may work in 
the private sector, and private sector employees may work at GAO. While 
GAO will establish the details of this program in duly promulgated 
regulations, we have generally fashioned, with exceptions where 
appropriate, the legal framework for this program on the Information 
Technology Exchange Program authorized by Public Law 107-347, the E-
Government Act of 2002, which the Congress enacted to address human 
capital challenges within the executive branch in the information 
technology area.

While the Information Technology Exchange Program only involves 
technology exchanges, GAO's exchange program will cover not only those 
who work in information technology fields, but also accountants, 
economists, lawyers, actuaries, and other highly skilled professionals. 
This program will help us address certain skills imbalances in such 
areas as well as a range of succession planning challenges. 
Specifically, by fiscal year 2007, 52 percent of our senior executives, 
37 percent of our management-level analysts, and 29 percent of our 
analysts and related staff will be eligible for retirement. Moreover, 
at a time when a significant percentage of our workforce is nearing 
retirement age, marketplace, demographic, economic, and technological 
changes indicate that competition for skilled employees will be greater 
in the future, making the challenge of attracting and retaining talent 
even more complex.

One of the key concerns raised in the past regarding private sector 
exchange programs has been the issue of conflict of interest. We 
believe that in this regard GAO differs from executive branch agencies 
in that, as reviewers, we are not as subject to potential conflicts of 
interest. Nevertheless, it is important to note in requesting this 
authority that we have made clear that the private sector participants 
would be subject to the same laws and regulations regarding conflict of 
interest, financial disclosure, and standards of conduct applicable to 
all employees of GAO. Under the program, private sector participants 
would receive their salaries and benefits from their employers and GAO 
need not contribute to these costs. We also believe that this will also 
encourage private sector individuals to devote a portion of their 
careers to the public sector without incurring substantial financial 
sacrifice.

Changing GAO's Name to the "Government Accountability Office":

Section 9 would change the name of our agency from the "General 
Accounting Office" to the "Government Accountability Office." At the 
same time, the well-known acronym "GAO," which has over 80 years of 
history behind it, will be maintained. We believe that the new name 
will better reflect the current mission of GAO as incorporated into its 
strategic plan, which was developed in consultation with the Congress. 
As stated in GAO's strategic plan, our activities are designed to 
ensure the executive branch's accountability to the American people. 
Indeed, the word accountability is one of GAO's core values along with 
integrity and reliability. These core values are also incorporated in 
GAO's strategic plan for serving the Congress.

The GAO of today is a far cry from the GAO of 1921, the year that the 
Congress established it through the enactment of the Budget and 
Accounting Act. In 1921, GAO pre-audited agency vouchers for the 
legality, propriety, and accuracy of expenditures. In the 1950s, GAO's 
statutory work shifted to the comprehensive auditing of government 
agencies. Later, beginning during the tenure of Comptroller General 
Elmer B. Staats, GAO's work expanded to include program evaluation and 
policy analysis. Whereas GAO's workforce consisted primarily of 
accounting clerks during the first three decades of its existence, 
today it is a multidisciplinary professional services organization with 
staff reflecting the diversity of knowledge and skills needed to 
deliver a wide range of services to the Congress.

Although currently less than 15 percent of agency resources are devoted 
to traditional auditing and accounting activities, members of the 
public, the press, as well as the Congress often incorrectly assume 
that GAO is still solely a financial auditing organization. In 
addition, our name clearly confuses many potential applicants, who 
assume that GAO is only interested in hiring accountants. We believe 
that the new name will help attract applicants and address certain 
"expectation gaps" that exist outside of GAO.

Concluding Observations:

In conclusion, I believe that GAO's human capital proposal merits 
prompt passage by this committee and, ultimately, the Congress. We have 
used the narrowly tailored flexibilities the Congress provided us 
previously in Public Law 106-303 responsibly, prudently, and 
strategically to help posture GAO to ensure the accountability of the 
federal government for the benefit of the Congress and the American 
people. Although some elements of our initial straw proposal were 
controversial, we have made a number of changes, clarifications, and 
commitments to address various comments and concerns raised by GAO 
employees. We recognize that the pay adjustment provision of this 
proposal remains of concern to some of our staff. However, we believe 
that it is vitally important to GAO's future that we continue 
modernizing and updating our human capital policies and system in light 
of the changing environment and anticipated challenges ahead. We 
believe that the proposal as presented and envisioned is well reasoned 
and reasonable with adequate safeguards for GAO employees. Given our 
human capital infrastructure and our unique role in leading by example 
in major management areas, including human capital management, the 
federal government could benefit from GAO's experience with pay for 
performance systems. Overall, we believe that this proposal represents 
a logical incremental advancement in modernizing GAO's human capital 
policies, and with your support, we believe that it will make a big 
difference for the GAO of the future.

Chairwoman Jo Ann Davis, Mr. Davis, and Members of the Committee, this 
concludes my prepared statement. I would be pleased to respond to any 
questions you may have.

Contacts:

For further information regarding this testimony, please contact 
Sallyanne Harper, Chief Mission Support Officer, on (202) 512-5800 or 
at harpers@gao.gov or Jesse Hoskins, Chief Human Capital Officer, on 
(202) 512-5553 or at hoskinsj@gao.gov.

[End of section]

Appendix I: Analysts and Attorneys: Pay Increases under GAO's Current 
System and Human Capital Proposal:

[See PDF for image]

[A] The percentage allocated to each type of pay increase varies 
annually.

[B] Under our current pay system, GAO is linked to the executive branch 
for annual base and locality pay adjustments; however, since the 
implementation of broad banding, has not been linked to the executive 
branch for performance-based merit pay increases, performance bonuses/
dividends, and other incentive award pay increases. The Executive 
Committee determines on an annual basis which pay categories, if any, 
are eligible for bonuses and dividends. For example, individuals in pay 
categories one and two received dividends for their FY 02 performance.

[C] During the transition period, GAO staff rated as performing at a 
satisfactory level (i.e., meeting expectations or higher) will be 
guaranteed, at a minimum, barring extraordinary economic circumstances 
or serious budgetary constraints, base pay and locality pay according 
to the same adjustment provided to executive branch employees. All such 
GAO staff will also be eligible for additional performance-based merit 
pay increases, performance bonuses (if pay capped)/dividends, and 
incentive awards. During the transition period, GAO will continue to 
raise the pay cap for its pay bands commensurate with executive branch 
pay cap increases absent extraordinary economic circumstances or 
serious budgetary constraints. The Executive Committee will determine 
on an annual basis which categories, if any, are eligible for bonuses 
and dividends.

[D] Under its human capital proposal, GAO proposes to decouple itself 
from the executive branch for base and locality pay adjustments after a 
2 plus year transition period. After the transition period, GAO will 
fully implement a modified pay system in which absent extraordinary 
economic conditions or serious budgetary constraints, all GAO staff 
rated as performing at a satisfactory level (i.e., meeting expectations 
or higher) can expect to receive at a minimum an annual adjustment 
designed to protect purchasing power (e.g., the Consumer Price Index) 
and address differences in compensation ranges by localities. In 
addition, all such staff will continue to be eligible for performance-
based merit pay increases, performance bonuses (if pay capped)/
dividends, and incentive awards. Before finalizing and implementing a 
modified pay system, GAO will seek the advice of the managing directors 
and GAO's Employee Advisory Council. We will also draft revised pay 
regulations and publish them for review and comment by all employees.

[End of figure]

[End of section]

Appendix II: Professional Development Program (PDP) Staff: Pay 
Increases under GAO's Current System and Human Capital Proposal:

[See PDF for image]

Note: PDP Staff who are Band IF (full performance) are covered by the 
merit pay system. See chart for Analysts & Attorneys.

[A] The percentage allocated to each type of pay increase varies 
annually.

[B] Under our current pay system, GAO is linked to the executive branch 
for base and locality pay. Band I staff in the PDP are eligible for 
periodic performance based PDP pay increases that are not available in 
the executive branch. PDP staff are not eligible for performance based 
merit increases and dividends.

[C] During the transition period, PDP staff rated as performing at a 
satisfactory level (i.e., meeting expectations or higher) will be 
guaranteed, at a minimum, barring extraordinary economic circumstances 
or serious budgetary constraints, base pay and locality pay according 
to the same adjustment provided to the executive branch employees. PDP 
staff rated as performing at the satisfactory level (i.e., meeting 
expectations or higher) will be eligible for performance-based PDP pay 
increases. During and after the transition period, PDP staff will not 
be eligible for dividends because PDP staff are evaluated every 6 
months for performance based PDP increases. During the transition 
period, GAO will raise the pay cap for its Band I pay band commensurate 
with executive branch pay cap increases absent extraordinary economic 
circumstances or serious budgetary constraints. The Executive Committee 
will determine on an annual basis which pay categories, if any, are 
eligible for PDP bonuses.

[D] Under its human capital proposal, GAO proposes to decouple itself 
from the executive branch for base and locality pay after a 2 plus year 
transition period. After the transition period, GAO will fully 
implement a modified pay system in which absent extraordinary economic 
conditions or serious budgetary constraints, all PDP staff rated as 
performing at a satisfactory level (i.e., meeting expectations or 
higher) can expect to receive at a minimum, an annual adjustment 
designed to protect purchasing power (e.g., the Consumer Price Index) 
and address differences in compensation ranges by localities. In 
addition, PDP staff rated as performing at a satisfactory level (i.e., 
meeting expectations or higher) will continue to be eligible for 
additional performance-based compensation, including performance-based 
PDP pay increases and incentive awards. Before finalizing and 
implementing a modified pay system, GAO will seek the advice of the 
managing directors and GAO's Employee Advisory Council. We will also 
draft revised pay regulations and publish them for review and comment 
by all employees.


[End of figure]

[End of section]

Appendix III: Administrative Professional Support Staff (APSS): Pay 
Increases under GAO's Current System and Human Capital Proposal:

[See PDF for image]

[A] The percentage allocated to each type of pay increase varies 
annually. This chart applies only to APSS employees who are under the 
General Schedule (GS) system. APSS employees who are already in broad 
bands should see the chart for Analysts and Attorneys.

[B] Under our current pay system, GAO is linked to the executive branch 
for annual base, locality, QSI, and WIG pay adjustments. APSS staff are 
eligible for performance incentive award pay increases; however, they 
are not eligible for performance bonuses (if pay capped) or dividends.

[C] During the transition period, GAO will implement broad banding for 
the APSS community between April - June 2004 and allow at least one 
full cycle of a new competency-based performance appraisal system 
before implementing any additional performance-based pay adjustments 
envisioned under HC II. Upon conversion to broad bands, GAO, as it did 
with its Analyst and Attorney communities, will replace QSIs and WIGs 
with performance pay increases that are not linked to the executive 
branch. Also, as it did with its Analyst and Attorney communities when 
they were converted to bands, GAO will provide a pay protection 
guarantee. Specifically, APSS staff who perform at the meets 
expectations level on any performance rating will earn a salary at 
least as high as they would have received had they remained under the 
General Schedule at their grade at the time of conversion. However, 
this guarantee will not apply to staff who are promoted after 
conversion or demoted and to new employees hired after the conversion. 
APSS staff will be eligible for performance-based merit increases, 
performance bonuses (if pay capped) /dividends, and incentive awards. 
During the transition period, GAO will continue to raise the pay cap 
for its pay bands commensurate with executive branch pay cap increases. 
The Executive Committee will determine on an annual basis which pay 
categories, if any, are eligible for bonuses and dividends.

[D] Under its human capital proposal, GAO proposes to decouple itself 
from the executive branch for base and locality pay after a two plus 
year transition for the broad band conversion. After the transition 
period, GAO will fully implement a modified pay system in which absent 
extraordinary economic conditions or serious budgetary constraints, all 
GAO staff rated as performing at a satisfactory level (i.e., meeting 
expectations or higher) can expect to receive at a minimum, an annual 
adjustment designed to protect purchasing power (e.g., the Consumer 
Price Index) and address differences in compensation ranges by 
localities. In addition, all APSS staff will continue to be eligible 
for performance-based merit pay increases, performance bonuses (if pay 
capped)/dividends, and incentive awards. Before finalizing and 
implementing a modified pay system, GAO will seek the advice of the 
managing directors and GAO's Employee Advisory Council. We will also 
draft revised pay regulations and publish them for review and comment 
by all employees. In addition, APSS staff receiving the pay protection 
guarantee from their conversion into pay bands will continue to be 
eligible for pay protection during the implementation period.

[End of figure]

[End of section]

Appendix IV: Wage Grade (WG) Staff: Pay Increases under GAO's Current 
System and Human Capital Proposal:

[See PDF for image]

Note: HC II refers to GAO's human capital proposal.

[A] The percentage allocated to each type of pay increase varies 
annually.

[B] Under its current wage grade pay system, GAO is linked to the 
executive branch for base, locality, and WIG pay increases. Wage grade 
employees are not eligible for QSIs and locality pay increases in GAO 
or anywhere in the federal government. Because its wage grade community 
is so small, GAO does not plan to include the wage grade community in 
the modified pay system under its human capital proposal.

[C] Wage grade staff are not eligible for bonuses and dividends.

[End of figure]

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