[Senate Hearing 109-343]
[From the U.S. Government Publishing Office]
S. Hrg. 109-343
ALTERNATIVE PERSONNEL SYSTEMS: ASSESSING PROGRESS IN THE FEDERAL
GOVERNMENT
=======================================================================
HEARING
before the
OVERSIGHT OF GOVERNMENT MANAGEMENT,
THE FEDERAL WORKFORCE AND THE DISTRICT
OF COLUMBIA SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 27, 2005
__________
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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24-240 PDF WASHINGTON : 2006
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Trina D. Tyrer, Chief Clerk
OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
NORM COLEMAN, Minnesota, Chairman
TED STEVENS, Alaska CARL LEVIN, Michigan
TOM COBURN, Oklahoma DANIEL K. AKAKA, Hawaii
LINCOLN D. CHAFEE, Rhode Island THOMAS R. CARPER, Delaware
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia MARK PRYOR, Arkansas
Andrew Richardson, Staff Director
Richard J. Kessler, Minority Staff Director
Nanci E. Langley, Minority Deputy Staff Director
Tara E. Baird, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Voinovich............................................ 1
Senator Collins (ex officio)................................. 2
Senator Akaka................................................ 3
Senator Carper............................................... 31
WITNESSES
Tuesday, September 27, 2005
Hon. Dan G. Blair, Deputy Director, U.S. Office of Personnel
Management..................................................... 4
Hon. David M. Walker, Comptroller General, U.S. Government
Accountability Office.......................................... 6
Jeffery K. Nulf, Deputy Assistant Secretary for Administration,
U.S. Department of Commerce.................................... 20
Arleas Upton Kea, Director, Division of Administration, Federal
Deposit Insurance Corporation.................................. 22
Dr. Hratch G. Semerjian, Deputy Director, National Institute of
Standards and Technology, Technology Administration, U.S.
Department of Commerce......................................... 24
C. Morgan Kinghorn, Jr., President, National Academy of Public
Administration................................................. 34
Colleen M. Kelley, National President, National Treasury
Employees Union................................................ 36
John Gage, National President, American Federation of Government
Employees, AFL-CIO............................................. 39
Alphabetical List of Witnesses
Blair, Hon. Dan G.:
Testimony.................................................... 4
Prepared statement........................................... 51
Gage, John:
Testimony.................................................... 39
Prepared statement........................................... 128
Kea, Arleas Upton:
Testimony.................................................... 22
Prepared statement........................................... 90
Kelley, Colleen M.:
Testimony.................................................... 36
Prepared statement........................................... 119
Kinghorn, C. Morgan, Jr.:
Testimony.................................................... 34
Prepared statement........................................... 114
Nulf, Jeffery K.:
Testimony.................................................... 20
Prepared statement........................................... 82
Semerjian, Dr. Hratch G.:
Testimony.................................................... 24
Prepared statement with an attachment........................ 109
Walker, Hon. David M.:
Testimony.................................................... 6
Prepared statement........................................... 61
APPENDIX
Michael B. Styles, National President, Federal Managers
Association, prepared statement................................ 146
Charts submitted by Mr. Blair for the record..................... 157
Questions and answers submitted for the record from:
Mr. Blair.................................................... 160
Mr. Walker with attachments.................................. 166
Mr. Nulf..................................................... 176
Ms. Kea...................................................... 181
Mr. Kinghorn................................................. 189
Ms. Kelley................................................... 191
Mr. Semerjian................................................ 193
Mr. Gage..................................................... 196
Mr. Styles................................................... 198
ALTERNATIVE PERSONNEL SYSTEMS: ASSESSING PROGRESS IN THE FEDERAL
GOVERNMENT
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TUESDAY, SEPTEMBER 27, 2005
U.S. Senate,
Oversight of Government Management, the Federal
Workforce, and the District of Columbia Subcommittee,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:07 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. George V.
Voinovich, Chairman of the Subcommittee, presiding.
Present: Senators Voinovich, Collins (ex officio), Akaka,
and Carper.
OPENING STATEMENT OF SENATOR VOINOVICH
Senator Voinovich. The Subcommittee will please come to
order.
Good morning and thank you all for coming. I am
particularly pleased that the Chairman of our Committee is here
with us. Thank you for being here, and my good friend, Senator
Akaka, the Ranking Member of the Subcommittee.
Today's hearing, Alternative Personnel Systems: Assessing
Progress in the Federal Government, will assess the progress of
Federal agencies in utilizing established workforce authorities
to develop alternative personnel systems.
I first of all would like to thank Senator Akaka for being
at today's hearing. Senator Akaka continues to be a strong
partner in this Subcommittee's efforts to address the Federal
Government's workforce challenges. Oversight of the Federal
workforce by this Subcommittee this year has focused on
recently enacted legislation. The Federal workforce is in a
great state of change. Almost half of the Federal workforce
will be transitioned into new personnel systems over the next
several years, and all agencies now can use significant new
flexibilities that have been provided to them.
Further change for the remainder of the Federal workforce
has been proposed, but that is not the subject of today's
hearing. Indeed, we must do our due diligence and determine how
change has been managed. Congress cannot expect the Federal
Government to successfully implement workforce reforms, however
sound and meritorious in their own right, if the capacity of
the Federal Government to implement the reform and accompanying
change is lacking. Even the best ideas need to be tested and
validated.
As many of the reforms are so new that we cannot yet fully
judge their effectiveness, alternative personnel systems might
offer us the best window right now into change in the Federal
workforce. The purpose of this hearing is to assess how
existing alternative personnel systems, two at the Department
of Commerce and one at the Federal Deposit Insurance
Corporation, were developed, implemented, and subsequently
refined.
We hope to learn more about what rules were changed. We
seek to learn how successfully these agencies managed difficult
transitions. In my mind, this is just as important as any of
the new workforce management concepts that are being employed.
For example, what was the role of the key management
agencies, such as the Office of Personnel Management? And is it
indicative of its ability to drive and manage workforce
transformation throughout the Executive Branch? Mr. Blair, you
are completely familiar with this, and we will have a hearing
later on about the capacity of OPM to handle this transition,
particularly in oversight over the new personnel management
systems. Do Federal managers require specialized and additional
training before they use pay banding and classification? I
would also like to learn how Federal employees have been
involved in these alternative personnel systems.
From their prepared statements, I know that the American
Federation of Government Employees has opted out of
participating in some of the new systems, while the National
Treasury Employees Union members are participating at the
Federal Deposit Insurance Corporation. I look forward to
learning more about their experiences.
It is important to learn the lessons from the experience of
these agencies and others. We all want a better system, and
although individuals may differ as to the details, this is not
the key question. The key question is: What do we have to do to
prepare and manage the transition from the old to the new?
I hope that today we will develop a good sense of how these
three Federal agencies have fared in this regard.
Senator Akaka, since we have the Chairman of our Committee
here, would you permit me to yield to our Chairman before your
opening statement?
Senator Akaka. Yes.
OPENING STATEMENT OF CHAIRMAN COLLINS
Chairman Collins. Thank you very much, Mr. Chairman.
First, let me take a moment to thank you and Senator Akaka
for your continued leadership in ensuring that our Federal
Government has the ability to recruit, retain, and reward the
highest quality workforce needed to accomplish its many
missions. Your December 2000 report to the President, ``The
Crisis in Human Capital,'' highlighted the critical importance
of addressing the government's human capital challenges and
helped our Committee to focus on the need for more flexible
Federal personnel management systems.
This hearing provides a valuable opportunity for the
Committee to evaluate the success of the Federal Government's
current alternative personnel systems. It is particularly
timely given the reforms underway at the Departments of Defense
and Homeland Security, as well as the ongoing debate about
whether and when to proceed with more comprehensive personnel
reform.
I look forward to learning more about the practical and
cultural challenges associated with the development and
implementation of the Federal Government's existing alternative
systems. I think that the Administration would have done well
to focus more on what was working out there right now before
moving to transform the personnel systems of large departments.
I am particularly interested in learning how the agencies
have worked with their employees to ensure that they have the
necessary training and a clear understanding of the new systems
as they were brought forward. I know that GAO did a lot of work
in this area, and as a result, the employee acceptance of the
new personnel systems has been quite high at the Government
Accountability Office.
Today's dialogue will provide constructive guidance as we
ensure that our civil service system continues to meet the
government's current and future workforce needs. So thank you
so much for your leadership on this. Senator Voinovich, you
truly are the Senate's leader on human capital issues, and I
appreciate your having this hearing.
Senator Voinovich. Thank you, Madam Chairman.
I would now like to call on the Ranking Member of our
Subcommittee, Senator Akaka.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman, for
holding this hearing, which I believe will make a huge
difference because I believe in the future of our government
and our country. You and I have been good partners. I very much
appreciate, Mr. Chairman, working with you on such joint
efforts like the chief human capital officers council and other
workforce flexibilities.
As you know, the first and third largest Federal agencies
have been granted broad flexibility to develop their own
personnel systems, and the Administration is endorsing similar
authority for the rest of the government. I also want to thank
Chairman Collins for her leadership on our full Committee. Our
Committee has really been focusing, as she mentioned, which for
me is very important, on existing systems and possible future
systems. And I want to tell her that I enjoy working with her.
Chairman Collins. Thank you.
Senator Akaka. Today's hearing focuses on the effectiveness
of existing alternative personnel systems. I am interested in
learning from our witnesses how they designed and implemented
pay for performance and other changes to their personnel
systems. I am also interested in hearing from our union
witnesses regarding any concerns they may have with these
alternative personnel systems. And I believe today's testimony
will underscore the importance of meaningful employee input.
Working with employees and their representatives will
increase acceptance of the changes, improve employee morale,
allow for quick identification and response to any problems,
and improve the employee-manager working relationship in other
areas as well. My goal is to solidify the acceptance of
meaningful employee involvement in any personnel reform.
I am curious to learn how our witness agencies have used
what GAO and organizations such as NAPA have told us for
years--that when implementing personnel reform, agencies need
money to reward performance, training on how to measure
performance, accountability for those in charge when problems
arise, oversight to address such problems, and meaningful union
and employee participation.
Employees need to be assured that the reforms represent an
improvement over the current system, that they will not be
subjected to arbitrary adverse action because of the changes,
and that any proposed changes will indeed work.
I thank all of our distinguished witnesses for sharing
their testimony with us today, and I thank you again, Mr.
Chairman, for your continued diligence in making the Federal
Government an employer of choice. Thank you.
Senator Voinovich. Thank you, Senator Akaka.
If the witnesses will please stand. As you know, the custom
of this Subcommittee is swearing our witnesses. Do you swear
that the testimony you are about to give this Subcommittee is
the truth, the whole truth, and nothing but the truth, so help
you, God?
Mr. Blair. I do.
Mr. Walker. I do.
Senator Voinovich. Time is always at a premium in the
Senate, and we have three panels of distinguished witnesses
today. I would ask that the witnesses limit their oral
statements to 5 minutes, and remind everyone that their entire
written statement will be inserted in the record today.
On our first panel, we have the Hon. Dan Blair, the Deputy
Director of the Office of Personnel Management, and the Hon.
David M. Walker, Comptroller General of the United States. And
I want to thank you both for coming.
Comptroller General, I just want to thank you publicly for
the tremendous support--and I am sure that the Chairman shares
my appreciation--that you have given this Subcommittee over the
years. So much of your testimony has been so valuable to us as
we have crafted legislation to make a difference in our
personnel systems here in the Federal Government.
Mr. Blair, will you please proceed?
TESTIMONY OF HON. DAN G. BLAIR,\1\ DEPUTY DIRECTOR, U.S. OFFICE
OF PERSONNEL MANAGEMENT
Mr. Blair. Thank you. Chairman Voinovich, Chairman Collins,
and Senator Akaka, thank you for including me in this hearing
today. On behalf of Director Springer, I want to thank you for
the opportunity to appear before you here today. She was
disappointed that the Subcommittee schedules and her schedules
didn't permit her to be here. She is looking forward to her
next opportunity to testify.
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\1\ The prepared statement of Mr. Blair appears in the Appendix on
page 51.
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I think we have a good story to share with you today.
Senator Voinovich. As I mentioned, we are looking forward
to having Director Springer testify before the Subcommittee on
the capacity of OPM to manage governmentwide transformation.
Mr. Blair. I think she would jump at that opportunity.
I have a longer statement, and I would ask that be included
in the record as well.
The concept of alternative personnel systems is most
clearly connected with the demonstration projects that Congress
authorized the Office of Personnel Management (OPM) to
establish as part of the Civil Service Reform Act of 1978. That
authority provided a means for the government to try out
alternative merit-based approaches to specific personnel
management tasks and processes before making them generally
applicable and available.
Alternatives successfully tested in some demonstration
projects have already been made available governmentwide. These
include recruitment and retention incentives and examining
using category rating. We have leaders in Congress like you and
the Subcommittee Members to thank for helping achieve this
goal. That is why we particularly appreciate your interest
today in the other broad category of alternative systems, those
that try alternatives to the General Schedule classification
and pay system, and those alternatives all emphasize
performance.
Across government, more than 90,000 employees are covered
by such systems. They are employed by a variety of agencies,
serve in a variety of occupations, and perform a variety of
functions. Our test beds are not narrow. Together they provide
significant and compelling evidence that these alternative
approaches work and work well.
We have been successful at meeting goals to better manage,
develop, and reward employees through these alternative pay
systems. Evaluations of these alternative systems, particularly
the Department of Defense (DOD) labs, have produced evidence of
success against several benchmarks. Better performers are paid
more. Employees are more satisfied with their pay. Turnover
among high performers is significantly reduced. Teamwork and
morale have not suffered. Communication has improved, and so
has trust in management.
These agencies are better equipped to compete for talent.
They use their pay systems to reinforce the message that
performance makes a difference and will be rewarded. We
understand that implementing these pay systems takes dedication
and strong leadership and, of course, effective performance
management systems. OPM plays a significant role in providing
design assistance and support as well as ensuring that
appropriate oversight and accountability are maintained.
When one looks across these successful alternative pay
systems, the original intent of the demonstration project
authority remains unfulfilled. We believe the record is clear.
These approaches can and do work, and we have shared with you
and stakeholders our approach to do so.
We are convinced some agencies are ready to implement these
ideas now, and we are leading efforts at other agencies to
ready themselves for such changes. Using the President's
management scorecard, we have set goals for agencies to
demonstrate they are ready to move into systems where pay is
more directly linked to performance. OPM and the Federal
Government have already learned and applied lessons through
these alternative personnel systems. We believe the time has
come to allow these alternatives to achieve the same
performance as other successful demonstration projects have
earned.
Title 5 should be amended to give all agencies carefully
controlled access to the classification and pay approaches
already tested successfully in these alternative pay systems
and make them a permanent part of their strategic human capital
management.
That concludes my oral statement, Mr. Chairman. I am happy
to answer any questions you may have.
Senator Voinovich. Thank you, Mr. Blair. Mr. Walker.
TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL, U.S.
GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Walker. Chairman Voinovich, Chairman Collins, and
Senator Akaka, it is always a pleasure to be back before you.
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\1\ The prepared statement of Mr. Walker appears in the Appendix on
page 61.
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I would like to start off, if I can, with a brief comment
on a strategic framework for addressing this Nation's
challenges. As you all know, GAO issued on February 16 of this
year our ``21st Century Challenges'' report, which I believe
provided a clear and compelling case on the need to
fundamentally review and re-engineer the base of the Federal
Government. One of the questions in the ``21st Century
Challenges'' document is how should the Federal Government
update its compensation systems to be more market-based and
more performance-oriented, which is the subject of today's
hearing. I would like to commend you on addressing this
important topic, and I hope to have the opportunity to work
with the Senate Homeland Security and Governmental Affairs
Committee and other committees to address this and other topics
that need to be addressed.
As you know, we are involved in this area from two
perspectives: One, we are leading by example. We are in the
vanguard of change. We are practicing what we preach, and we
have real live examples of what works and what does not work.
What we have done is one way, it is not the only way; but it is
scalable, it is transferable, and we are trying to help others
help themselves see the way forward in this area.
Second, with regard to the work that we have done dealing
with government at large, we strongly believe that a more
market-based and more performance-oriented pay system is called
for. The current classification and annual compensation
adjustments that apply to a vast majority of the Executive
Branch agencies, are based on the Federal workforce in the
1950s. Much has changed since the 1950s, and we need to update
and modernize our policies to recognize 21st Century realities.
At the same point in time, how it is done, when it is done,
and on what basis it is done makes all the difference in the
world as to whether or not you are likely to be successful or
not. There needs to be a very inclusive and participatory
process, working with employees, their representatives, and
others in order to try to figure out the best way to move
forward.
At the same point in time, I don't want to kid anybody.
This is a very complex and controversial endeavor. It involves
fundamental cultural transformation, and there will be segments
of the population that will not like it, and that is a fact.
Nonetheless, I believe very strongly that this is the way
forward, and we need to make sure that we try to do it the
right way in order to maximize the chance of success and to
minimize the possibility of not only failure, but abuse of
employees.
There are three key themes that I think have to be kept in
mind. First, a shift to a more market-based and performance-
oriented pay system needs to be part of a more comprehensive
change management and performance improvement strategy
throughout the Federal Government. This is a means to an end.
It is not an end in and of itself. But it is a critically
important element.
Second, more market-based and performance-oriented pay
systems cannot be overlaid on most organizations' existing
performance management systems. Most of the current performance
appraisal and management systems in the Federal Government,
frankly, aren't very good. They don't provide for meaningful
feedback to employees. They don't provide meaningful
distinctions between top performers and people who aren't
performing as well as they should. They don't necessarily have
adequate checks and balances to assure consistency throughout
the organization and equity throughout the organization. It is
not just having the authority to implement a market-based and
performance oriented pay system, it is making sure that the
infrastructure is in place before an agency can operationalize
that authority. That is of critical importance.
Third, organizations need to build up their basic
management capacity, and they also have to engage in
fundamental training, development, and a variety of
communications initiatives in order to be able to make this
shift successful.
We believe that before Executive Branch agencies should be
able to implement more market-based and performance-oriented
compensation systems, they should be required to demonstrate to
OPM that they have met certain critical criteria before they
move forward. They need an objective third party to be able to
do that because, otherwise, they could not only be hurting
themselves and their employees, they could be tainting the
water for broader-based reforms throughout the Federal
Government.
Again, I would be happy to answer any questions with regard
to work that we have done in the past or with regard to our own
experience, and thank you for the opportunity to be here.
Senator Voinovich. Thank you, Mr. Walker.
Madam Chairman, I am not aware of what your schedule is. If
it is all right with you, Senator Akaka, I would be more than
happy to let Chairman Collins start off with the questioning.
Chairman Collins. Thank you very much, Mr. Chairman. That
is very generous of you. I do have an Armed Services meeting
right now, so I am being torn between two priorities.
Mr. Blair, the Administration has proposed legislation that
would extend certain personnel flexibilities, some of which are
associated with the Departments of Defense and Homeland
Security to agencies throughout the Federal Government. In
drafting the proposal, did the Administration consider instead
building upon the authority that OPM already has to work with
agencies to develop more pilot projects or to expand existing
ones rather than seeking legislation for a governmentwide
approach?
Mr. Blair. Right now, the authority we have for
demonstration projects is severely limited. It is limited to no
more than 10 projects, I believe, and no more than 5,000
employees. we think that the experience that we have had,
especially with the lab demos, offers us the experience base we
need to apply it on a more governmentwide basis.
I was glad to hear Mr. Walker's comments. It is important
that in expanding this, we make sure that there are safety
measures in place, and that is one of the things that the
proposal that we have drafted and is still subject to comment
and review would do, is allow for OPM certification. But as far
as the current demo projects, it is very limited in scope, and
it doesn't offer us the needed flexibility to expand it on a
governmentwide basis as we would want.
Chairman Collins. Mr. Walker made a very important point
when he said you cannot just overlay a new system on an old
system and think it is going to work. It takes a lot of
training. I know this is an issue which Senator Voinovich has
stressed, and that you need to make sure that managers
understand the system, and that they are trained in it.
The year 2000 baseline evaluation of the demonstration
project at the Department of Commerce indicated that the
employees felt that their supervisors were ``too busy'' to
provide a greater level of attention to their individual
performance appraisals. This is a fear that I hear expressed by
Federal employees all the time--that there is not going to be
the training and that their supervisors are not going to apply
it fairly because they will not know exactly how to do it or it
just will not be done.
If you are going to try pay to performance, something I do
strongly support, you have to have an infrastructure that
ensures that you have trained, committed supervisors performing
the appraisal.
What steps is OPM taking to ensure that agencies' managers
are trained? And I would ask you that question with DHS and DOD
as well as the pilot programs you have ongoing.
Mr. Blair. I think you hit an important point. You know,
what we have heard from the field in our feedback is not just
that some managers aren't prepared to do this, but the question
is my manager is a bonehead and what am I supposed to do when
that manager is in charge of my pay. Very legitimate question.
One is training. We have to properly train our managers and
supervisors to begin work that they should have been doing in
the first place, but because of the lack of incentives in the
current system, haven't always been doing.
In our President's Management Agenda right now, in the
scorecard, we are going to ask that agencies have robust
performance management systems in place covering 60 percent of
their workforce. It is a start. We are also asking that
agencies develop what we call a beta site or a pilot project,
essentially, whereby agencies would have robust performance
management in place, having constant and ongoing feedback
between supervisors and employers, and be ready to link at the
appropriate time, when given the authorization, pay to
performance.
I think that this beta site concept is critical because it
gives critical mass within an agency or department to begin
expanding the performance management culture, which we need to
do.
Chairman Collins. Mr. Walker, you have emphasized not only
the need for training, but also employee involvement and
constant communication. What steps did GAO take to ensure that
its workforce was prepared for the cultural changes associated
with its shift to a pay-for-performance system since in my view
you are a model that other agencies could learn from?
Mr. Walker. Thank you, Madam Chairman. We are not perfect.
We never will be. But we try very hard to lead by example and
to get this right.
It starts with communication from the very top of the
agency, in our case, myself. The case for change starts with
explaining why the status quo is unacceptable, why there is a
need for change, and then establishing mechanisms to make sure
that employees and their representatives, to the extent that
they are unionized, have a key part in helping to see the way
forward from where we are at to where we need to be. The
process needs to be very participatory, involving a lot of
players, and considering information from a variety of parties.
Ultimately the buck stops at the agency head's desk, and
obviously, before I make final decisions, we end up having
informal focus groups and task teams, publish proposed
regulations, and obtain comments on those proposed regulations
before final decisions are made.
I cannot emphasize enough the importance of making the case
from the top, having consistent communications, and having a
broad net of involvement by all key stakeholders. In the final
analysis, there are people that are going to like and not like
what ultimately gets decided on. But hopefully nobody will be
able to credibly argue about the process. The process must have
integrity. Everybody has to be heard. All of their thoughts
have been considered, and that is really important for
credibility in order to provide the necessary degree of trust.
Chairman Collins. Thank you.
And thank you so much, Mr. Chairman, for accommodating my
schedule. I really appreciate it.
Mr. Walker. Mr. Chairman, can I mention one thing before
Chairman Collins leaves? I know you are on the Armed Services
Committee. I would like to have an opportunity in the near
future to brief you on our recent report on military
compensation. The average military compensation for active-duty
military is $112,000 a year when the average compensation in
the United States is $50,000. That system is fundamentally
broken, just like the civilian pay system, and I would love to
have a chance to talk to you about it. Thank you.
Chairman Collins. I would look forward to that. Thank you,
Mr. Chairman.
Senator Voinovich. Thank you, Madam Chairman. I just want
to publicly say how much Senator Akaka and I appreciate the
support that we are getting from you, too, in our endeavor over
the last several years. Thanks.
Chairman Collins. You are doing good work.
Senator Voinovich. Senator Akaka.
Senator Akaka. Thank you, Mr. Chairman.
I want to add to Chairman Collins, my thanks for the
support she has given the Chairman and me on these critical
human capital issues. Thank you.
I want to add my welcome to our panelists, Mr. Blair and
Mr. Walker. Director Blair, I am interested in knowing where
agencies get the money to fund new training programs. You have
mentioned this is one important part of moving into a new
system. And, on average, what are the costs associated with
training for demonstration projects? Can you comment on that?
Mr. Blair. For the most part, agencies have funded the
costs for training out of their existing budgets. Some agencies
have independent authority, and I think you will hear more from
them. They may have had alternative sources to fund these types
of things. To expand this on a government-wide basis certainly
is going to require some start-up costs, and there is no doubt
about that, and let's be up front about that. We will have to
anticipate what those costs will be.
At this present time, I don't know what the exact costs of
the demonstration projects have been, but I would be happy to
provide that for the record.\1\
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\1\ The charts submitted by Mr. Blair for the record appear in the
Appendix on page 157.
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As far as the overall costs, agencies that have been part
of these demo projects have funded it out of their current
appropriations and have been able to do so without costs
varying significantly from their General Schedule costs.
Senator Akaka. Mr. Walker.
Mr. Walker. Senator, in the case of GAO, we made a business
case to the Congress, not only our oversight committees but
also the appropriators. We were up front that there was going
to be a one-time, up-front cost in moving from the old system
to the new system. There are incremental costs, and I seriously
question whether or not agencies will be able to fund that one-
time incremental cost out of their baseline budget without
having adverse implications in other areas. Designing these new
systems and effectively implementing them includes training and
development.
The Administration, at one point in time, had requested a
governmentwide human capital fund for pay for performance.
While I don't think that made sense, I do think that a
governmentwide fund on which agencies might be able to draw
upon as a basis to design and implement new performance
appraisal systems and other actions that are necessary to build
the infrastructure to make performance-based pay work would
make sense. That is something that I think should be considered
by the Congress because if agencies don't have the necessary
infrastructure in place, they will not be successful.
Senator Akaka. Yes, and I want to repeat that Director
Blair had mentioned the importance of training in bringing this
about, and I have said I am interested in how much it will
cost, and, of course, to be sure that we have that money so
that we can do it properly.
Mr. Blair. Senator, if I may, I have in my report,
according to GAO, start-up costs for designing, installing, and
maintaining automation and data systems at one of the DOD
laboratories cost $125,000 at NAVSEA's Dahlgren Division, and
the acquisition demo was $4.9 million. So let the record be
clear there are those up-front costs that will have to be
either funded or absorbed within existing budgets. Smaller
organizations may be able to do so. For large organizations, it
is going to be something that we will have to account for.
Senator Akaka. Mr. Blair, you said that in a pay-for-
performance system, agencies need to have strong management
systems in place. Do you feel that we do have that in our
agencies, or is that something that we need to work on as well?
Mr. Blair. I think we need to work on that, and we are
doing that. As we speak, we have been urging agencies to move
away from pass-fail systems because those systems don't make
meaningful distinctions in levels of performance. We have the
revised Senior Executive Service (SES) system, which is
relatively new but will be improving year after year, as it
continues to operate. And that allows those meaningful
distinctions in levels of performance to be recognized and tied
to any pay increases. But most importantly, we are looking at
what can we do within the current system to ensure that every--
I don't want to use the term ``flexibility,'' but that every
opportunity is being used to enhance performance short of pay.
So if pay is taken off the table, what can we do?
We have asked agencies again to establish a pilot project
in each of their own organizations which, short of linking it
to pay, would have a performance management system up and
running in place. Employees and supervisors would be providing
meaningful feedback to one another. Expectations would be
established, communications would be set, and what we would
want to do is, from that pilot project within an agency, or a
beta site, as we call it, have that expand to the rest of the
agency or department in preparation for linking it to the
reward system.
In answer to your question, though, we are not there yet,
but we are preparing agencies.
Senator Akaka. I have further questions for the next round.
Thank you.
Senator Voinovich. Mr. Blair, Mr. Walker has said that it
would be a joke to overlap a new system on the current system
of performance evaluation. What puzzles me is that performance
appraisals are very important to management, and basically what
Mr. Walker has said--and you can speak for yourself, Mr.
Walker--is that effective systems are not in place. We have had
hearings before about the performance systems rating, and that
all employees are rated about 95 out of 100. I specifically
might reference the General Services Administration where I
have spent time with Mr. Perry, who, in spite of the fact GSA
does not have the authority to implement pay for performance,
he is instituting a whole new performance system as part of his
management objectives in the Department.
Don't you believe that this might be the best way to move
in preparation for the long-term goals of the proposed Working
for America initiative that has been talked about?
Mr. Blair. I think that is the direction we are moving. By
requiring agencies to re-evaluate what their performance
appraisal systems are and the performance management systems
are, we are asking them to prepare themselves for the day that
we can link it to pay. Are we there yet? Absolutely not. But we
do have evidence and signs of success. The General Services
Administration is one of them. The Department of Labor is
another. And we are moving in that direction.
Does it mean that you continue to do the same things the
same old way? No. It means that you have to start focusing
managerial attention and leadership on developing these systems
in ways in which you have meaningful employee feedback,
expectations are set up front, and distinctions are made
between levels of performance.
It is a cultural change. What we are trying to say within
government now is that performance matters. Unfortunately, we
have that undertow of the current General Schedule system that
says time rather than performance matters, and we have to fight
against that undertow. But we are urging and pushing agencies
in the direction of developing and implementing and getting
results from better performance management systems.
Senator Voinovich. OK. And you think you can do that
without the incentive of being tied to pay reform?
Mr. Blair. We will do everything that we can, but I will
tell you that providing that incentive of linking it to pay
would be the primary driver in something like this. But short
of that, we will continue within the Executive Branch and those
agencies affected to make sure that we have better systems in
place. But until you can actually say that your performance is
linked to pay, you don't have that hammer there to really put
strength behind your performance management system.
Senator Voinovich. One other question, and that is, have
you identified an existing alternative personnel systems?
Mr. Blair. Well, we have through the alternative personnel
systems looked at benchmarks such as employee satisfaction,
turnover rates, commitment to mission. And for the most part,
we have seen increases in employee satisfaction, and employees
don't want to go back to the old systems that they had before
these alternative systems. But I think that a driver here is
how are we going to change, not only the culture, and the
culture is that performance should matter, but also other
values that are affected by that, such as commitment to
mission, commitment to work, and job satisfaction. By better
linking performance with pay, you start helping driving those
other cultural changes as well.
We have established well-known benchmarks for our
demonstration projects, and in the Administration draft
proposal, known as Working for America, agencies couldn't move,
and couldn't link their performance management systems to pay
until they are certified by OPM according to--I believe it is
nine criteria that the draft legislation proposes. So what we
are not proposing, is to turn a switch on overnight and
suddenly overlay a pay system on top of the current performance
management systems. We know we have a substantial amount of
work to do. We are starting that work. I think we will be
seeing progress over the next couple of years. But in no way
would we say that we are turning a switch on today and that it
would happen. It is going to take dedication and commitment
from the Congress and from the Executive Branch to get this
done, but we think it is very important because it is a value
that we think that we should inculcate in the Federal
Government.
Senator Voinovich. Mr. Walker.
Mr. Walker. Two things, Mr. Chairman.
First, if you want a high-performing organization, whether
you are in the private sector, the government, or the not-for-
profit sector, you must link institutional, unit, and
individual performance measurement and reward systems on an
outcome basis. There are some exceptions in the Federal
Government, but the vast majority of the Federal Government has
not done that. That is fundamental. That must be done first
before you go to pay for performance. Frankly, even if you
don't have pay for performance, as you pointed out, you should
do it anyway.
Now, the other difficulty is that there hasn't been a lot
of incentives or accountability for people to do that in the
past, in part because of the current classification and pay
system. For most of the Executive Branch, 85 percent of the
annual pay adjustments have nothing to do with skills,
knowledge, and performance. They relate to the across-the-board
pay adjustments and the passage-of-time step increases. Even
the QSIs, the quality step increases, which are supposed to be
performance-related, aren't realistic because you have
performance appraisal systems where everybody walks on water.
Therefore, too many people get the increases.
Therefore, when you have a situation where there is no
meaningful distinction made between top performers and people
who aren't performing as well--you have a big problem. Don't
get me wrong, a vast majority of people in the Federal
Government are dedicated and capable. They are just as good as
the private sector, and are doing a really good job day in and
day out. But when there is no meaningful distinction made
between top and poor performers, it is a fundamental flaw in
the system, and it needs to be corrected. But, again, how you
do it, when you do it, and on what basis you do it matters to
make sure that you are successful in the transition.
Mr. Blair. Mr. Chairman, if I could add to that, in our
demonstration project experience, we have seen that where we
have had these linkages, we have had a better distribution in
the performance ratings. I think we can certainly provide that
for the record,\1\ but I think that it goes to show you that
when the incentives are there, these government entities are up
to the challenge and can perform. But where these incentives
aren't in place, it is harder to accomplish that kind of
cultural change.
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\1\ The chart submitted by Mr. Blair for the record appears in the
Appendix on page 159.
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Senator Voinovich. It will be interesting to hear from the
folks that are talking about alternative personnel systems to
just see how much the linkage to the pay was an incentive for
them to move forward with their system.
Senator Akaka.
Senator Akaka. Yes, Mr. Blair, you mentioned about OPM
certifying agencies. I want to ask Mr. Walker the question. You
testified that agencies should be authorized to implement
reform only after they have met certain requirements, including
an assessment of demonstrated institutional infrastructure and
an independent certification by OPM.
In your opinion, does OPM have the capacity to certify
agencies, and if not, who should certify agencies?
Mr. Walker. For the Executive Branch, I think OPM is the
logical choice. It has to be somebody independent from the line
agency, and obviously there are a lot of very capable and
dedicated people at OPM that have a lot of human capital and
human resources expertise.
I do, however, have a serious concern as to whether OPM has
adequate capacity, both as to number and as to skills and
knowledge, to be able to deal with a significant volume of
certifications that may be required in any given period of
time. I think that is a real issue. Frankly, I think one of the
biggest transformation challenges in the Federal Government is
OPM, and I have told Linda Springer that.
Mr. Blair. If I can respond to that, Senator Akaka. I know
that Mr. Walker and Director Springer have had conversations
about this, and over the last decade, OPM has substantially
changed from where it was 10, 15 years ago and is continuing to
change.
I think the evidence of our capacity and evidence of the
willingness to build on our current capacity has been seen
through our leadership role in the President's Management
Agenda. We are the only outside agency other than the Office of
Management and Budget that owns an initiative, the Strategic
Management of Human Capital, and we have been leading that now
for 5 years and have been pushing agencies forward, constantly
raising the bar for agencies to improve their management of
human capital.
Are we better off today than where we were last year?
Absolutely. Are we going to be better off tomorrow than where
we are today? We expect so and we are going to push agencies to
do so. But, we are subject to the vagaries of the
appropriations process. Just this past year, there were
attempts to cut our appropriation from one of our policy shops
which had been helping to drive that change. That is not
helpful for us, and we understand that process can go through
several permutations, and we understood the strains on the
budget as well. But to cut our policy shop, the very people who
are doing the work that Mr. Walker just described that we need
to be doing seems to run counter to where we really want to be.
And so I think that is one of the challenges to our
capacity, is making sure that we have the proper funding and
that we avoid attempts like that to undermine us that we have
seen in the past.
Senator Akaka. Thank you, Mr. Blair. I would like to have
you comment on this. In her testimony, Ms. Kelley at NTEU,
writes that there is a shortage of information to indicate that
alternative pay systems have had any significant impact on
recruitment, on retention, or on performance, and that a
January 2004 GAO report on demonstration projects found no
evidence that the systems improved any of those measures. I
would like to get your response on her comments.
Mr. Blair. Well, Ms. Kelley is a friend of mine, and we
were just talking before the hearing began on some other
issues. And I certainly respect her point of view, but I
strongly differ with that. We have had 25 years of experience
at this, and the 25 years of experience shows that these are
better alternatives to a 50-year-old system that is currently
in place.
Can any one of the demonstration projects be held up as an
example of reform that can be extended out to the rest of the
system? No. But taken in their totality, I think we have
important lessons that we have learned, and those lessons are
that performance does matter and that we can shed the 15-grade,
10-step General Schedule in favor of a better pay-banding
system. We can have more market-based pay in something like
that, as well as rewarding performance. When you give poor
performers, high performers, outstanding performers, and
mediocre performers the same pay raise in the same year, what
message does that send? I don't think it sends the appropriate
message that we want to send to the American people nor our
workforce, that your performance is valued and will be
rewarded.
Senator Akaka. Mr. Walker, your comments?
Mr. Walker. Yes, Senator. To the extent that you move to a
more market-based, skills-, knowledge-, and performance-
oriented compensation system, I think you will find several
things. The people that have the higher degrees of skills and
knowledge and performance will like it. The younger people, by
and large, because of their philosophy, will like it. At the
same point in time, there are segments of the population who
are good people, who are performing well day in and day out,
that may not like it. The reason they may not like it is
because right now under the Federal system, once you end up
getting into a grade level--whether it is GS-12, GS-15,
whatever--you have an entitlement to make the pay cap. It is
not a matter if you are going to make the pay cap. It is only a
matter when you are going to make the pay cap if you stay there
long enough, unless you are promoted.
Since 85 percent-plus of Executive Branch pay adjustments
are on autopilot and have nothing to do with skills, knowledge,
and performance, by definition that can create a system where
there is a negative correlation to skills, knowledge, and
performance for people who are the pay cap because they are the
people that didn't get promoted. You can actually have people
who are making more money than the people at the next level but
have poorer performance and less responsibility because of the
way the system is structured.
The current system made sense when a significant majority
of the Federal workforce was clerks, which it was in the 1950s.
But now we have some of the most skilled, knowledgeable and
dedicated people in this country working for the Federal
Government, and we need to move to a system that reflects that
fact.
Senator Akaka. Thank you, Mr. Walker.
Mr. Chairman, I, too, have to go to Armed Services, but I
am hoping to be back here as soon as I ask my questions there.
Thank you very much.
Senator Voinovich. Thank you, Senator Akaka.
The point that was just made by Senator Akaka, again, I am
anxious to hear from the folks that have put in alternative
systems, personnel systems, about the impact that it has had on
the agency's effectiveness and performance. Mr. Walker, has it
made a measurable difference at GAO? Is GAO a better
organization, more effective, working harder and smarter and
doing more with less?
Mr. Walker. It clearly has, but I can also say that we have
made a number of other changes. This is one of many changes
that we have made.
I will also say, Mr. Chairman, we didn't take a vote on
this. When my predecessor, Chuck Bowsher, implemented
broadbanding in 1989, he didn't take a vote on whether or not
we were going to go to broadbanding. More recently, we didn't
take a vote as to whether or not we were going to go to a more
market-based performance compensation system. We didn't take a
vote as to whether we were going to go to skills-, knowledge-,
and performance-based system. And there were differences of
opinion. There were differences of opinion within our
workforce, as there will be in others. Some people like it and
some people don't like it. It depends on where you sit and how
you think it will affect you. That is human nature. It is
understandable.
But there is absolutely no question in my mind it has been
a major contributor to our doubling our performance in
virtually every category as compared to 5 years ago.
Senator Voinovich. Mr. Blair, with the war in Iraq and now
Hurricanes Katrina and Rita, some of my colleagues are talking
about paying for the natural disasters out of an across-the-
board reduction in various departments in the Federal
Government. I have argued that, yes, we should look for
economies, but there are so many unmet needs in some of these
agencies that we have got to be careful about what we are
doing. And the question I have is: Does the Administration
understand the financial commitment that must be made in order
to move forward with this human capital reform?
How knowledgeable is this Administration in terms of the
kind of financial commitment that is going to have to be made
in the agencies to move with new systems like MaxHR and the
Defense Department's National Security Personnel System?
Mr. Blair. Well, you are always going to have the budget
considerations, and the budget considerations are going to be
exacerbated by the disasters that have occurred over the last
month in terms of Hurricanes Katrina and Rita. That is the
atmosphere in which we are operating today. Are we going to be
asked to do more with less resources? I think that is assumed.
That is something that I think we can expect. I have no
specific knowledge of anything, but I would just say from
having two decades of experience here in Washington, you can
see that happening.
But you have to also ask the question: If not now, when? We
are always going to have budget considerations on board like
this, and if we are going to say that we spend--$105 billion or
$108 billion a year on Federal payroll, are we spending it in
the best way possible? I think the answer is no.
So I think that we need to make a concerted effort to
improve the way that we award these scarce dollars that we
have, however, many dollars we have. And I think that we also
need to say that in awarding that, what is the value that we
want to place in our culture, in our Federal workplace culture?
And I think that the value that we want to have is performance.
Right now, time drives that. Time on the job is the factor for
within-grades. Basically if you are on the job and have a
pulse, you get the annual increase. I think that is the wrong
value that we want to send.
If we talk about the war for talent, being able to bring in
the best and the brightest, being able to bring in good and
high performers into a high-performing organization, having a
multi-level, multi-step system, which is complicated and
foreign to those who are not familiar with the Federal
workforce, isn't the best way of recruiting. We have seen with
the demonstration projects that we can bring in better talent,
and the best talent we bring in does, in fact, stay.
But as far as the costs are concerned, the up-front costs,
we will have to negotiate that as time goes on. We have to
admit that those are going to be there, though. I think that to
ignore that would be to ignore reality. We have to make sure
that we have the investment in time and energy and resources in
order to get this done.
Senator Voinovich. It will be interesting to hear from the
second panel what resources they needed. For example, have they
hired consultants to help with implementing the new system?
Mr. Walker, would you like to comment?
Mr. Walker. Yes, I can, several quick points.
First, we did hire outside consultants to help us, and it
did cost money. It was a one-time cost, and we will be happy to
provide that for the record. I think it will provide you with a
sense as to what that one-time investment might be for other
agencies.
Second, the across-the-board annual pay adjustment that the
Deputy Director just referred to is--even unacceptable
performers are currently entitled to that by law. Let me
restate: Even unacceptable performers are entitled to it by
law. I don't know of anything that is performance-oriented
about that.
Third, I think the worst thing that Congress could do is
across-the-board cuts. That is exactly the opposite of
promoting high-performing organizations. That means that high-
performing organizations would suffer just as much as ones that
aren't deserving, that haven't done the job of re-engineering
the base of their operations and transforming for the 21st
Century. We need to look at the base of government. A vast
majority of government is based on the 1950s and 1960s, whether
it is spending or whether it is tax policy. Our current base of
government is not only unaffordable; it is unsustainable. And
you know that, Mr. Chairman. You have read our ``21st Century
Challenges'' document. I just wish all your colleagues would,
because it is clear and compelling that our children and
grandchildren are going to pay a huge price if we don't start
getting our act together soon.
Thank you, Mr. Chairman.
Senator Voinovich. When I was governor and mayor, our
senior management was paid according to performance.
Implementing that wasn't easy. I will never forget it. At the
State level, we talked about implementing it, but it was just
such a gigantic task, we decided to spend our time on quality
management.
But I can tell you this, that through quality management,
when I left the governor's office, we had 17 percent less
people working for the State of Ohio than we had when I came
into office, except for the Department of Corrections.
The point is we had a better workforce. People came to me
and said through quality management, they participated, they
were happier, they felt better about the job that they were
doing. It made a big difference. It seems to me that if a new
system isn't going to make a difference in terms of, (1) the
effectiveness of the organizations for the benefit of the
people of the United States, and, (2) for the betterment of
employees, then you have to ask yourself, well, why go through
the exercise?
So I am anxious to hear from our next witnesses about what
impact these respective systems have made in their operations.
Mr. Blair, I would like to say to you that at this stage, I am
pleased with what is going on in the Department of Defense,
even though the regulations are not final. Implementation will
begin in several spirals. We have several of them in Ohio. I
want you to know I am monitoring them to see what is happening.
I have become familiar with the people involved in Ohio and
what they are doing. I think it is important for your OPM to
understand that a lot of this is in your hands. You are going
to have to be as candid as you possibly can be with us and with
the Administration in terms of the commitment of resources they
are going to need to make this system a successful system.
Mr. Blair. Well, Senator, we are certainly not shy
internally about voicing our opinions about what would be
needed in order to get the job done. And I think that you know
from our relationship and the organization's relationship with
you, we have, I believe, a straight-talking relationship in
which we value what you say and we share with you what our
thoughts are. And I hope we can continue along those lines.
We seem to have focused quite a bit on the start-up costs
of these demonstration projects and what the start-up costs
would be should a systemwide reform be enacted. Let's remember
what has been taking place, too, over the last 5 years in the
Federal Government. You referenced a report that you provided
to then-incoming President George Bush in 2000. I think that we
have made substantial progress on the Strategic Management of
Human Capital in those 5 years, and during those 5 years we
have devoted significant resources to improving human capital
management in government. We are not where we should be, and we
are not where we want to be, but we are on the path of where we
want to be.
The efforts that we have put in over the last 5 years at
your insistence and with your help will also enable us to
better lay the foundation for this robust performance
management system which would best be linked with pay.
Senator Voinovich. I have just one last comment I will
make, and that is, if we peel back a lot of the problems that
we have in the hearings on FEMA and so forth--it is the issue
of having the right people with the right knowledge and skills
at the right place. And the public has got to understand, as
well as Members of Congress, that people do make the
difference. In any good organization you have good finance and
you have good people; and the better the people that you have,
the better the organization that you have. That is what we
should be striving for--the best and the brightest people in
the Federal Government. We should be able to attract them, and
we should be able to motivate those individuals. How well we do
on that is going to have a lot to do with what kind of a
country we live in in the future.
Mr. Walker.
Mr. Walker. I can underline that, Mr. Chairman. There is a
natural tendency when something as tragic as Katrina happens or
a similar event for the Congress to want to act and to provide
support and assistance. Candidly, the Federal Government, as
you know, tends to be a lag indicator. It tends to get involved
late, in many cases when others have failed to act or when
things go wrong. Government tends to do three things: one,
throw spending at it, the more the better, the assumption is
you care more if you spend more; two, throw tax preferences at
it, again, the more the better, it shows that you care more;
and, three, throw new players at it or new organizations at it.
You hit the key. The key is not that. You can throw all
kinds of money, you can throw all kinds of tax preferences, you
can throw all kinds of players. But if you don't have the right
people with the right skills, the right knowledge, in the right
place at the right time, and if we don't have our
organizational structures functioning given 21st Century
realities, we are wasting a bunch of time and money, and we are
never going to be effective. So you are so right, and that
underlines the importance of this fundamental review and re-
examination of the base of government, including the issue that
you are holding a hearing on today.
So thank you, sir.
Senator Voinovich. Thank you very much. You are right. We
are at it again, and we haven't even heard from the agencies.
Of course, I think that they have some responsibilities. In
fact, several of us have written to Secretary Mike Chertoff and
to Andy Card, requesting the Administration come back to us and
tell us what it is that they are doing to respond to all of the
questions being raised in the Congress. We should give them
that opportunity. Rather than throw more money at a problem, we
have to make people understand it is the quality of the people
that we have that really make the difference.
Thank you very much.
Our next witnesses are the Hon. Jeffery K. Nulf, Deputy
Assistant Secretary for Administration, Department of Commerce;
Arleas Upton Kea, Director of the Division of Administration,
the Federal Deposit Insurance Corporation, FDIC; and Dr. Hratch
Semerjian, the Deputy Director of the National Institute of
Standards and Technology.
I want to thank the witnesses for coming. As you know, it
is customary to swear in witnesses. Before you sit down--if you
will raise your right hand. Do you swear that the testimony you
are about to give this Subcommittee is the whole truth, and
nothing but the truth, so help you, God?
Mr. Nulf. I do.
Ms. Kea. I do.
Dr. Semerjian. I do.
Senator Voinovich. They all answered yes.
Mr. Nulf, we will call on you first, and I thank you very
much for being here today, and we are anxious to hear your
testimony. Again, as I reminded the other witnesses, please
keep your statement to 5 minutes, understanding that your full
testimony will be part of the record, I would appreciate it.
Thank you.
TESTIMONY OF HON. JEFFERY K. NULF,\1\ DEPUTY ASSISTANT
SECRETARY FOR ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE
Mr. Nulf. Good morning, Mr. Chairman. Thank you for the
opportunity to appear before you today on the Department's
efforts in managing alternative personnel systems. I have the
honor of serving President Bush and Secretary Gutierrez as the
Deputy Assistant Secretary for Administration at the Department
of Commerce. As one of the principal tenets of President Bush's
Management Agenda, strategically managing Commerce's workforce
to better achieve our mission-critical objective is a key
priority for Secretary Gutierrez and the Department.
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\1\ The prepared statement of Mr. Nulf appears in the Appendix on
page 82.
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Commerce has been managing pay for performance since 1988.
As Dr. Semerjian will testify, our involvement in alternative
pay-for-performance systems occurred at the National Institute
of Standards and Technology following the success of China
Lake. Based on the successful results achieved with that
effort, we established the Commerce Demonstration Project in
1998. Over the last 7 years, it has grown to 4,200 employees in
five operating units stationed throughout the Nation.
In October, we anticipate adding 33 employees represented
by two local bargaining units that have asked to participate.
We are also working with OPM to include 3,500 additional NOAA
employees.
The demo's benefits are perhaps most clearly evident in
five areas:
One, performance. Under the demo, managers have greater
flexibility to recognize the contributions made by high
performers. Since pay level adjustments and bonuses are
determined as part of the annual performance appraisal, the
nexus between performance and salary is very clear to all
employees at all levels.
During our most recent program evaluation, 53 percent of
supervisors in the demo project reported that they were able to
identify and reward good performers under the new system as
compared with 26 percent in the GS schedule.
Two, recruitment. Recognizing the highly competitive job
market in which we must operate, the demo provides managers
with a real opportunity to effectively negotiate salaries with
job candidates. The tool is serving us well, particularly in
recruiting individuals with specialized skills in mission-
critical occupations. The most recent evaluation of the demo
indicated that 41 percent of participating supervisors believe
that they are better equipped to recruit well-qualified
employees as a result of being able to offer competitive
salaries. Only 19 percent of GS supervisors felt the same way.
Three, classification. Under the Commerce demo, the GS
classification system of hundreds of career series has been
streamlined into four career paths. This allows managers to
more quickly advertise to fill vacancies and to consider a
broader range of skill sets to meet their specific needs.
Four, employee satisfaction. As employees and managers have
gained experience with the demo, trust in the system has grown.
Over half of the demo employees surveyed agreed that increases
were directly related to an employee's performance compared to
roughly one-third within the GS schedule.
Five, employee retention. It is clear that the demo project
has had a positive effect on retaining good performers.
Employees are rated on a 100-point scale. Those receiving a
score of 40 or above are eligible to receive a bonus and/or pay
increase. By allowing managers to better distinguish and reward
differences in performance, we have found that turnover is
lower among high performers, for example, a 1.5-percent
turnover rate for those employees receiving 90 or above, while
a 7.7-percent turnover rate for those employees receiving lower
scores.
Based on our experience, we believe that the success of
alternative performance systems depends on several factors:
Communication. We have learned that first and foremost a
well-developed approach to educate employees and managers about
any new system is essential. This helps to create a mutual
understanding of the objectives of the new system and provide a
shared perception that change will be implemented together as a
team.
Effective management. As with any personnel management
system, if pay for performance is not managed well, it can be
problematic. Employees need to feel confident that their rights
are protected under a new system. Managers must have the skills
needed to manage employees effectively. This can only be
accomplished by providing training in performance management
and performance feedback to all affected individuals.
At Commerce, we provide quarterly briefings to all new demo
employees and quarterly training on demo flexibilities to new
supervisors. This year and last year we conducted training on
performance feedback both for supervisors and employees at the
end of the appraisal cycle to better position everyone for
success.
Routine and objective evaluation. Not only do annual
evaluations ensure transparency to interested stakeholders and
that the merit system principles are followed and the system is
free of discriminatory reprisal, they also provide the basis on
which human resource managers may objectively assess the
success of the demo and determine any need for adjustment.
At Commerce, such adjustments have included strengthening
supervisory training in providing performance feedback;
instituting performance management training and communicating
performance expectations to employees; establishing a
centralized data manager to oversee and ensure the quality of
automated systems and data collection; and adjusting how
service retention credit is calculated based on performance
rating.
Furthermore, we are more closely examining the impact of
the demo on minority employees by adding focus groups and
expanding how we analyze the results for annual evaluations.
We have had very good success with testing pay for
performance and believe that the experiences that Commerce and
other Federal agencies have had provide a sound basis on which
we can continue to move forward.
Change is never easy. Far-reaching changes to a decades-old
system that will profoundly affect the work lives of hundreds
of thousands of Federal employees will inevitably, and
justifiably, cause concern and merit careful consideration.
Based on our experience and that of Federal agencies across the
government, however, we believe the tools are in place that are
needed to continue the forward momentum initiated by the
various demonstration projects.
Thank you for giving me the opportunity to speak, sir, and
I welcome your questions.
Senator Voinovich. Thank you very much. Ms. Kea.
TESTIMONY OF ARLEAS UPTON KEA,\1\ DIRECTOR, DIVISION OF
ADMINISTRATION, FEDERAL DEPOSIT INSURANCE CORPORATION
Ms. Kea. Good morning, Mr. Chairman, and thank you for the
opportunity to testify on behalf of the Federal Deposit
Insurance Corporation regarding our experiences administering
and managing a personnel system at an independent Federal
corporation.
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\1\ The prepared statement of Ms. Kea appears in the Appendix on
page 90.
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I will briefly highlight how the FDIC's personnel system
has helped us achieve our mission, the importance of flexible
personnel policies in today's rapidly changing financial
industry, and our experience with ``pay banding'' and ``pay for
performance.''
The FDIC has served as an integral part of our Nation's
financial system for over 70 years. Established at the depth of
the most severe banking crisis in the Nation's history, the
immediate contribution of the FDIC was the restoration of
public confidence in banks. Today, the FDIC's mission remains
unchanged. We maintain our Nation's confidence in our financial
system in three important ways: We insure the deposits held in
our Nation's banking system; we examine and supervise banks for
safety and soundness and compliance with laws and regulations;
and, we handle the resolution of failed banks when that becomes
necessary.
In carrying out its mission, the FDIC does not receive
appropriated funds. The FDIC is funded by insurance assessments
on the deposits held by insured institutions and by the
interest earned on the deposit insurance funds.
In the late 1980s and early 1990s, the FDIC faced a banking
crisis unprecedented since the Great Depression. The FDIC
successfully responded to that challenge as it has to other
challenges throughout its history.
Part of the reason for that success was the flexibility the
FDIC had to adjust the size of its workforce rapidly and
substantially. In the early 1980s, the FDIC employed 4,000
people. By the early 1990s, the FDIC employed over 23,000
people, and today the FDIC employs fewer than 5,000 people. The
FDIC was able to use its hiring flexibility in managing a mix
of temporary, term, and permanent appointments to meet changing
workforce needs and its authority to set compensation and
benefits to encourage voluntary departures of employees through
buyouts instead of involuntary, disruptive reductions in force.
My written statement covers the history and the major
lessons the FDIC has learned in using its flexibility to
develop our personnel programs, and I would like to highlight
five of the lessons that we believe may be of most interest to
the Subcommittee.
First, the rapidly changing technology in financial fields
of the 21st Century demand that government agencies have access
to flexible hiring authority as a part of their staffing
options. The FDIC used a temporary appointment authority to
meet its fluctuating personnel needs during the banking crises
of the 1980s and the 1990s.
Over the past year, working with the U.S. Office of
Personnel Management (OPM), the FDIC has received delegated
authority to offer competitive term appointments with the
possibility of conversion to a permanent position without
further competition. This kind of approach should address our
need to expand and contract the FDIC's workforce to meet our
future work challenges.
The employees hired into this ``Corporate Employee
Program'' are given introductory training in three critical
business functions. They are then trained to become
commissioned in one or more of these functions. If retained by
the FDIC at the end of their term appointment, these employees
will have a broad range of skills and perspective that will
serve to benefit the Corporation. In addition, we are also
close to finalizing delegated authority from OPM to quickly
reemploy recent retirees to handle any banking crisis.
My second point is that managing fluctuating personnel
needs requires creative solutions. Setting targets and
conducting RIFs is fast and effective, but such actions do not
permit an organization to consider other more time-consuming
and employee-friendly alternatives. For example, when the
FDIC's failure resolution activity declined, we knew we had
employees with great ability but little work. And so to address
this issue, we received authority from OPM to waive certain
critical job level requirements and create a crossover program
which allowed employees who were trained to handle bank
failures to become bank examiner trainees without a significant
reduction in pay. This was a very successful program.
In addition, the FDIC's compensation flexibility permitted
us to offer more generous buyout programs than those offered in
the Executive Branch. This also ensured that we had large
numbers of voluntary separations of those in surplus positions.
As we have used them, buyouts have taken a little bit longer,
but they have saved money in the long run over RIFs, and they
were better received by the employees.
My third point is that compensation programs that recognize
performance rather than longevity are very beneficial to
organizations, but they do need to be implemented very
carefully. The experience at the FDIC is that pay-for-
performance program implementation works best when executives
lead by example and compensation changes are made first for the
executives and then managers and supervisors.
My fourth point is that it is important to listen to
employee feedback and be willing to adapt and evolve any
changes in performance-based programs. An organization should
expect that implementing pay-for-performance systems will need
to make changes based on practical experience and from the
feedback from those involved and subjected to the program.
The FDIC is currently on its fourth iteration of its pay-
for-performance system for managers and executives and has made
a number of changes based on feedback received from the surveys
and focus groups tasked with suggesting improvements. We do
have indications that our managers agree with this change in
the pay philosophy and culture. They are committed, as we are,
to improving the system going forward.
My final and fifth point is that it is extremely important
that the organization invest the time and effort to train both
managers and employees on the new pay system, and that it
create a system that is perceived to be fair by those evaluated
and compensated under it.
This concludes my oral statement, and I would be happy to
answer any questions that you may have.
Senator Voinovich. Thank you very much. Dr. Semerjian.
TESTIMONY OF HRATCH G. SEMERJIAN,\1\ DEPUTY DIRECTOR, NATIONAL
INSTITUTE OF STANDARDS AND TECHNOLOGY, TECHNOLOGY
ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE
Dr. Semerjian. Thank you, Mr. Chairman, and thank you for
the opportunity to testify today before this Subcommittee
regarding the Alternative Personnel Management System used at
the National Institute of Standards and Technology.
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\1\ The prepared statement of Dr. Semerjian with an attachment
appears in the Appendix on page 109.
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Originally founded in 1901 as the National Bureau of
Standards, NIST is a non-regulatory Federal agency within the
U.S. Commerce Department's Technology Administration. NIST
serves industry, academia, and other parts of the government by
advancing measurement science, standards, and technology to
enhance economic security and improve the quality of life for
all Americans. In order to accomplish this mission, NIST has
primarily relied on one key asset: Its staff of dedicated
scientists and engineers, technicians, administrative, and
support staff. Recognizing the need to attract and retain top-
quality staff, NIST's management worked with Congress, starting
in the mid-1980s, to establish an alternative personnel
management system.
NIST's Authorization Act for Fiscal Year 1987 established a
5-year project to demonstrate an alternative personnel
management system. The NIST demonstration system became
permanent as of March 1996 through the National Technology
Transfer and Advancement Act of 1995.
The goals of the NIST system were to improve hiring of
high-quality personnel and retention of high performers in
order to more effectively accomplish the mission and goals of
NIST. Evaluations and feedback from managers and employees show
that these changes have significantly improved NIST's ability
to recruit and retain high-quality staff. In addition, a basic
objective of the original project was to design the system to
serve as a model for simplifying and improving Federal
personnel systems governmentwide, not just at NIST. The so-
called new and improved system has dramatically changed NIST's
management of human resources. It also has provided a model of
reform to other agencies within the Department of Commerce,
such as the Technology Administration, NOAA, and the Bureau of
Economic Analysis. And I understand NASA is in the process of
implementing an APS based on the NIST experience.
NIST's alternative personnel management system has enabled
us to do several things much better. Today, NIST competes more
effectively in the labor market through more efficient and
faster staffing mechanisms. NIST compensates and retains good
performers more effectively. NIST has simplified, accelerated,
and improved the classification process. We use performance
appraisal results as the basis for granting pay increases and
performance bonuses. NIST has streamlined the personnel
Administration process through a reduction of paperwork,
automation of personnel processes, and delegation. And, line
management is more directly involved in the recruiting.
The NIST system covers approximately 2,500 NIST employees
in four career paths: Scientific and engineering professionals,
technicians, administrative professionals, and administrative
support staff. Senior Executive Service employees and ``trades
and craft''--wage grade--employees are not covered by this
system.
Since implementing the alternative personnel management
system, according to an OPM report, NIST is more competitive
for talent, has retained more top performers than a comparison
group, and NIST managers reported significantly more authority
to make decisions concerning employee pay. Key indicators of
NIST's ability to attract and retain world-class scientists and
engineers are the numerous awards and recognition that NIST
staff have received, since the implementation of the APMS. NIST
staff have won two Nobel Prizes for Physics, been selected for
a MacArthur ``Genius'' Award, received the National Medal of
Science, received UNESCO's 2003 Women in Science Award,
received 21 Presidential Early Career Awards for Science and
Engineering, and 16 members of the staff have been inducted
into the National Academies of Science and Engineering.
While I would like to say everything has worked perfectly
since its implementation, the fact is that NIST has had to make
minor adjustments to the system over time. This was not
unexpected, and has improved the functionality of the system.
Over the years, both supervisory and nonsupervisory employees
have provided ideas for improving the system, through focus
groups and other forums. NIST responded to this feedback by
developing a revised performance appraisal and payout system in
1991, more recent feedback--from the 2000 and 2002 NIST
Employee Surveys, the NIST Research Advisory Committee's 2002
Report, and stakeholder focus groups--has led to the latest
changes which will be implemented during the next performance
cycle.
Starting on October 1, NIST will replace the current 100-
point rating scale with six performance ratings and link pay
increases to these ratings. This will simplify the system,
strengthen the pay-for-performance link, and increase the
transparency of the system.
In its present form, I think the NIST system offers
improvements in position classification, recruitment, extended
probationary period for research positions, performance
appraisal, pay for performance, automation and paperwork
reductions, and delegations of authority to managers, all of
which have many advantages over the current GS system.
In conclusion, the NIST Alternative Personnel Management
System is meeting its objectives to recruit and retain quality
staff; to make compensation more competitive; to link pay to
performance; to simplify position classification; to streamline
processing; to improve the staffing process and get new hires
on board faster; and to increase the manager's role and
accountability in personnel management. The NIST system
continues to operate as an innovative personnel system which
has a proven track record of demonstrating new ideas in the
area of human resources management.
Mr. Chairman, thank you for inviting me to testify today,
and I would be happy to answer any questions you may have.
Senator Voinovich. Thank you very much.
My first observation is in the FDIC and in NIST,
particularly in NIST, you are going after the best and
brightest people in the country. The conclusion must have been
made some time ago that if you were going to get them, you had
to mirror the private sector or you were not going to be able
to be competitive. I would like you to comment. Do you think at
this stage, because of the new system, that you are in that
position where you can be competitive?
Dr. Semerjian. From personal experience, I can assure you
that we are a lot more competitive than we were 15 or 20 years
ago. As a supervisor, when I was trying to recruit people, I
felt that I had a high obstacle to jump over to be able to
compete with offers from the private sector. I think we are
doing much better in that regard. Our recruiting is much more
successful, and our retention of our high-quality people is
much better. Those two Nobel Prize winners are still at NIST. I
am not sure that would not have been the case if we were
operating in the old system.
Senator Voinovich. In other words, could you comment on how
pay for performance has helped? The question is: If I am being
interviewed for a job at NIST, how important is it for me to
know I am going to work for an organization that is going to
pay me on the basis of my performance?
Dr. Semerjian. The people we recruit aren't necessarily
coming to NIST to get rich, so to speak, but obviously they
have to have a reasonable living, and they want to make sure
that they are not going to get stuck on some level, artificial
level, that they have the opportunity to move up in terms of
their salary as well as in the organization. And I think that
the fact that we have this documented experience, where the
statistics are actually on our website for everybody to see for
transparency's sake, I think, helps us a great deal in our
recruitment.
Senator Voinovich. In other words, they can see how you
reward people. And, of course, once they are on board, that is
very important in terms of retaining them.
Dr. Semerjian. Absolutely.
Senator Voinovich. A very good friend of mine has a son--
and I will not mention the agency he worked with, but he went
to work for them for about a year and a half, and left. He just
said that it was mediocrity. He felt that people were not being
rewarded for what they were contributing, that it was an
automatic thing, and he left them.
Ms. Kea, how about the FDIC? How much of a difference has
pay for performance made in recruiting and retention at FDIC?
Ms. Kea. Thank you, Mr. Chairman. There are several areas,
which we look at. First, I would like to say that there is a
comparability statute, which does require us at the FDIC to
remain comparable with the other financial institution
regulators. That is one factor we look at as we are setting our
pay and our benefits.
But in addition to that, we do find----
Senator Voinovich. Just a minute. It is an independent
agency, but you are allowed to establish compensation the FDIC
maintains comparable with other regulatory agencies?
Ms. Kea. That is correct, sir, and the history behind that
is, I believe, Congress did not want us to be in danger, each
of the financial institution regulators, of losing some of our
best and brightest to the other financial institution
regulators. And so each year, we do take that into
consideration, and we share and exchange information.
In addition to that, we do believe that we do lose
employees in some instances to the industry which we regulate.
We also have some difficulty attracting certain professionals
in the area of research, which is the heart and soul of some of
our work at the FDIC. We do believe that our flexibilities
allow us the opportunity to do a better job of recruiting those
individuals in particular.
Senator Voinovich. Is pay for performance taken a factor in
their coming to work with you?
Ms. Kea. Yes, because it is the pay for performance that
would allow us to give them increases in their pay.
Senator Voinovich. And that helps with retention, too.
Ms. Kea. Yes, sir.
Senator Voinovich. I have a theory that one of the reasons
why we had the tremendous scandal in our financial institutions
is in part due to the Securities and Exchange Commission losing
a lot of their people to other regulatory agencies because of
their compensation. And, of course, we found out about it too
late.
At the FDIC, how do you determine whether or not the system
is really working, that people indeed are being paid on the
basis of their performance and it is not arbitrary? I am sure
you hear constantly from folks that this is an arbitrary
system, it is very subjective, not objective, and leads to
favoritism and so forth. How do you guarantee that is not
present in the organization?
Ms. Kea. That is something that we pay a lot of attention
to. We have tried to create a process that has transparency. We
have well-defined objectives that are linked to the mission of
each of the divisions, the offices, the branches, or the entire
corporate mission. We publicize those. We provide training to
our employees with regard to how they can achieve those
objectives.
We also provide, and invest, much time in training our
managers on the new system. With regard to the nominations,
that is a very rigorous process and a number of different
individuals participate in that process.
We provide a formal opportunity for our executive levels to
give us feedback through a survey. We make adjustments based on
what we hear in that survey. With regard to our bargaining unit
employees, whether or not we conduct a survey is something that
we would bargain with our union. We have not done that thus
far, but we have found other means to get feedback from our
employees. We have large employee gatherings, where our
executives are available to hear feedback about our system.
I should say that we are in our fourth iteration of our
pay-for-performance system for our executives, and those
changes have come directly from the feedback that we have
heard.
I should also mention----
Senator Voinovich. All of your employees are in pay for
performance now, including those represented by unions?
Ms. Kea. That is correct.
Senator Voinovich. OK.
Ms. Kea. I should also mention that every 3 years we
bargain pay and compensation with our union. This year is a pay
and compensation bargaining year, and we are in negotiations at
this point with our union.
Senator Voinovich. OK, but you negotiate the pay-for-
performance system in place.
Ms. Kea. In fact, the pay-for-performance system is
something that is also subject to the negotiation. The system
that we have in place right now today is one that the union did
participate in the details of creating through that
negotiation.
Senator Voinovich. But it is a pay-for-performance system.
Ms. Kea. Yes.
Senator Voinovich. How long have you worked with the
agency?
Ms. Kea. I have been at the FDIC since June 1985, so it is
over 20 years.
Senator Voinovich. OK. So you have a good indication of the
history. How do you think that they feel about this new system,
in terms of their happiness on the job and their productivity,
self-worth?
Ms. Kea. I would say that there are mixed reviews from the
employees. We have some pretty specific information, as I
indicated earlier, from our executives. Overall, they have
indicated that they certainly prefer this. They think that it
is more fair than everyone receiving the same pay for work that
is at varying levels, of high or low contribution.
We have also surveyed our non-bargaining unit employees,
and they have confirmed to us that they certainly prefer a
system that gives a greater reward for a greater contribution.
I think that it is probably mixed with regard to the
greater part of the population, the remaining part of the
population, and the reason for that would be that it is a very
large shift in the culture. I think as some comments have
already been made by OPM and GAO, the culture has been one of
everybody receiving everything across the board. This is a very
different culture, one where you receive an award based on how
great your contribution.
I feel that this pay-for-performance system provides some
sense of motivation and encouragement. I have been involved in
some conversations with some of our employees where they wanted
to know: Well, how did that employee get that? How can I get
it? And what sort of plan can I put myself on where I can get
that?
Senator Voinovich. So you would agree that for management
this has been helpful?
Ms. Kea. Yes.
Senator Voinovich. With respect to the organization, do you
see it as a more efficient, vibrant organization that is
getting the job done, with this system contributing to that? It
has not been a negative but, rather, a positive type of
exercise that has helped.
Ms. Kea. I think that it has helped us to be more efficient
as an organization in terms of achieving our mission. If you
recall, when I gave the numbers of how we were a very small
organization, we became very large in response to a crisis, and
then we had to shrink back down. I think that there is no
question we are doing much more work with a smaller number----
Senator Voinovich. You went from 4,000 to 23,000 employees,
and then from 23,000 down to 5,000?
Ms. Kea. Slightly under 5,000 today.
Senator Voinovich. Amazing.
Ms. Kea. So we are doing much more with fewer resources,
and I think one of the ways that we have met that challenge is
to provide these kinds of incentives to attract individuals and
for those who are there to motivate them to work harder.
Senator Voinovich. Thank you. Senator Akaka.
Senator Akaka. Thank you, Mr. Chairman. Sorry I had to run
off to another committee, but I am delighted to be back here to
ask my questions. I want to add my welcome to the panel.
Mr. Nulf, I understand that there are over 100 employees in
Hawaii participating in a demonstration project at the
Department of Commerce. Can you explain how pay for performance
works for those employees who receive what we call a non-
foreign COLA and whether it differs from the system in place
for other employees?
Mr. Nulf. Thank you, sir. In Hawaii, as well as throughout,
with the demo project in Commerce, my fellow members on the
panel have been speaking to the fact of expectations being laid
out and the pay-for-performance aspect that is brought to the
table by ringing out an entitlement and rewarding your
performers. At the end of the day, pay for performance does a
number of things, some with purpose and some maybe as an
indirect complement to what otherwise is going on. Your
performers stay. We have 1.5-percent turnover in 90 and above.
We have performers that are down into the 40s that we have high
turnover almost double-digit.
I think those things are reflective of the fact that people
want to be successful. When you put this type of system in
place, I think it is well received by employees. I think the
managers enjoy the flexibilities to it. But, most importantly,
I think whether it is a team unit, a department, whether it is
a group stationed in Hawaii, whether it is a group stationed
here at the Herbert Hoover Building, people and teams and
agencies want to be successful. I would agree with what Mr.
Walker said earlier that the Federal workforce, on the whole,
is an incredibly talented and diverse group of folks that are
committed to what they are doing, and the opportunity to serve
is extremely important. But the other aspect of that is people
do have bills and people do have mortgages, and given the
opportunity for your performers to have access to a greater
degree than your lesser performers, I think it creates a win-
win situation, sir.
Senator Akaka. The employees' non-foreign COLA that we are
talking about, will they be impacted at all?
Mr. Nulf. Will they be impacted? In what way, sir?
Senator Akaka. Well, will the COLA still be an allowance?
Mr. Nulf. Yes, sir.
Senator Akaka. And my question is how does this new system
impact COLA?
Mr. Nulf. Yes, they receive their COLA for those that are
in place regardless. And for those that are rated eligible by
the performance ratings they receive, of course, the additional
performance pay that is put on the table. But, yes, they are
certainly eligible for COLAs, sir.
Senator Akaka. Will the COLA be reduced or increased based
on performance? Do you have an idea at this point in time?
Mr. Nulf. I do not, sir. I can certainly respond back to
this Subcommittee.
Senator Akaka. Thank you. My next question is to the entire
panel. Was there an increase in the number of discrimination
and unfair treatment complaints following the implementation of
a pay-for-performance system at your respective agencies? If
so, what type of redress options do employees have if they
believe their pay is based on matters other than their
performance?
Ms. Kea. I will speak first on behalf of the FDIC, and my
answer is yes, we did see a number of increases in the number
of complaints. These were either a labor grievance or an EEO
complaint. Management feels, at the FDIC, that it is very
important to have an appeals process to the pay-for-performance
system. We anticipated that because it is such a great cultural
change that there would be a number of such increases.
I will say that with regard to the number of cases that
have come through the system, a number of them have been
overturned in favor of management. However, we do look at those
cases and what is said in them, and if there are lessons to be
learned, or if there is information that we find helpful, we
certainly look at that information and use that as we try to
improve our system.
Senator Akaka. Mr. Nulf.
Mr. Nulf. Yes, sir. In the early stages, we as well saw
similar numbers, I would say, as we experienced within the GS.
That being said, though, we have a focus similar to what has
been testified today to make sure that the communication
process and the involvement from affinity groups and monthly
meetings and quarterly meetings with the CFO ASA, that all the
various groups and everybody has a stake, if you will, in the
process. And that has in the long run, certainly over the
course of the last survey, in the last 5 years those numbers
have gone down and, in fact, are below what we have otherwise
with the GS schedule.
Senator Akaka. Dr. Semerjian.
Dr. Semerjian. Senator, we have not seen any major increase
in grievances, but, first of all, I think NIST had a culture of
technical excellence, so rewarding excellence was not a foreign
concept. But, also, I think it is very important to make sure
that we establish the metrics as part of the contract, so to
speak, the performance agreement that we establish at the
beginning of the year. We provided quite a bit of training for
our managers to make sure that they know how to prepare
appropriate performance agreements with the appropriate
metrics. Performance appraisal is always a subjective process,
of course. The question is how can we make it as objective as
possible, and by establishing the metrics, the expectations at
the beginning of the year, I think goes a long way to avoid
those kinds of grievances. But we have not seen, when we
started this process almost 20 years ago, any major increase.
Senator Akaka. Thank you for your responses. Mr. Chairman,
my time has expired.
Senator Voinovich. Senator Carper, welcome.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Thanks, Mr. Chairman. I was just meeting
with one of your constituents from Toledo, CEO of Owen
Illinois, who used to run a big part of Dupont's fibers
business. He sends his best. He is interested in asbestos.
Senator Voinovich. Hopefully we will get that bill.
Senator Carper. In Delaware, in my old job, as well as
Governor Voinovich, we used to focus a lot on education, and we
had a problem in my State, with being able to get enough well-
qualified substitute teachers to show up on a daily basis at
schools who could come into the classroom and do a good job
when the regular teacher was not there. One of the ways that we
finally settled on to address the problem was we tried to get
retired teachers who still wanted to be in the classroom but
they just did not want to do it every day, but they were
willing to work as a substitute teacher. And the pay was not
great, but what we finally worked out was an arrangement where
they could come back to work as a substitute teacher, still
receive their pension benefits, full pay, full pension pay,
which you were entitled to, and they would also receive the
daily stipend that was paid in a particular school district as
a substitute teacher.
I am told that you mentioned in your testimony before I got
here, that the FDIC would like to have the authority to bring
back some of your former employees with skills that might be
needed when your workload increases, maybe for a merger or
bankruptcy, or that kind of thing.
I just shared with you one example of what we have done in
a little State to enable us to do something like that with some
success, and I just want to ask if you know of any other
agencies that have a similar kind of authority, that I think
you are looking for for the FDIC. Is there a model out there,
at least at the Federal level, or maybe a non-Federal level,
that you think could be adopted by the FDIC or other agencies
in similar circumstances?
Ms. Kea. Thank you, Senator Carper. That is a very good
point, and we are very interested in bringing back our
retirees, obviously, in the event of some catastrophic failures
that would require more than the number of staff that we have
available. It would be an excellent resource for being able to
go out and get individuals who are already trained, have the
knowledge in their head, and could be of immediate assistance
to us.
We have been in serious talks with OPM, and we would like
to be able to waive the dual compensation to allow them to
continue to receive their benefits and still be compensated
during the time that they are working for us. We think that it
is something that would work quite well, and, obviously, it
would alleviate any increase in adding employees to the rolls
of the FDIC.
I am not aware, just off the top of my head, of what other
organizations currently have that. That is some information
that I would be happy to supply back to the Subcommittee, and I
could do that.
Senator Carper. I understand, Dr. Semerjian, that you
mentioned in your testimony that the National Institute of
Standards and Technology is now, you believe, more competitive
in hiring and maybe doing a better job of retaining folks, the
kind of folks that you have been seeking to attract since you
implemented this--I guess it is called an alternative personnel
system. And I would just like to ask two questions. First, what
aspects of that system do you think have contributed most to
those improvements that have been noted? And, second, did the
agency experience the kind of problems earlier that you face
today?
First of all, what aspect of the system do you think has
contributed most to the improvements that have been noted?
Dr. Semerjian. Certainly, our ability to recruit high
performers has been affected, as well as our ability to recruit
in a timely fashion, because now we actually have direct hiring
authority for our professionals. So that makes a huge
difference when we are competing with other offers, so to
speak, to be able to make a commitment as opposed to waiting
months.
But probably the biggest impact has also been in the
retention area.
Senator Carper. How so?
Dr. Semerjian. As I had mentioned earlier, we have very
high performers, such as Nobel Prize winners, and you could
imagine they have a lot of transportability, so to speak, that
they get a lot of offers just about every week. And to be able
to retain them at NIST, we had to be fairly creative, and we
have the tools, the ways of rewarding them through retention
bonuses and other ways to keep them at NIST as part of our
atmosphere, culture of technical excellence.
Senator Carper. OK. Good. Thanks.
My last question is for Ms. Kea again, and I don't know if
we will have time for anyone else to comment, but I would at
least ask you to start. I understand that Colleen Kelley from
the Treasury Employees will testify later that the pay-for-
performance system at the FDIC has been, in her view,
demoralizing for at least some of the folks who work there. And
I would like to ask you to comment on that, but I would also
like to ask you to speak for a minute about how you--``you''
more broadly than ``you'' as an individual, but how you seek to
make the system fair, treating other people the way we would
want to be treated?
I know there are always some bad apples in every agency. We
have had bad apples in every outfit I have been a part of my
whole life. So my guess is you probably have some, too. But we
also strive to get everyone, I guess, up to a certain level.
Any thoughts you have how you differentiate between employees
that are doing a good job and those that are doing a great job?
How do you all differentiate there?
Ms. Kea. Thank you, Senator. First, I do want to say I have
a great deal of respect for Ms. Kelley, but I do not agree with
her opinion or her assessment that our current system has been
demoralizing for employees. We actually have worked with the
union in developing this system. I am not sure you were in the
room when I did state earlier that we at the FDIC do negotiate
pay and compensation, which includes our performance appraisal
system with the union. We do that every 3 years.
Senator Carper. I was not here, no.
Ms. Kea. This is a third year for us, and we are, in fact,
in negotiations now currently with the union, and one of the
items for discussion on the table is our performance evaluation
system. We are very interested in hearing continuing and
ongoing feedback from the union.
With this program that we currently have in place--we
started it at the executive level from the top going down--we
surveyed our executives about the program and got pretty
specific feedback. They indicated that they definitely felt
that a system which gave them higher pay for higher
performance, was more fair than one where everybody received
the same pay but had unequal performance.
We then implemented a similar pay-for-performance system
with our non-bargaining unit employees, and we also surveyed
them. And the feedback that we received was that they also felt
that it was a more fair system than everybody receiving the
same increase across the board.
We have not implemented a formal survey for our bargaining
unit employees. We would have to bargain, in fact, to do that.
However, we found other ways to receive feedback. We go to
staff meetings. We make managers available at the large staff
meetings, and we try to talk to employees. We had a very
through training system where we gave briefings and staff
meetings to our employees about the new system so that they
could understand what the goals were in order to be eligible
for an increase in their pay. And we tried to link those to
either a corporate mission or a mission at the branch level or
at the division level, thereby giving everybody an opportunity
to make a contribution and eliminating the thought or the
philosophy that the nature of some jobs provide greater
opportunities to make a contribution. We really focused on
that.
The review process for determining who would get the award
was a very thorough one involving several levels. And, in fact,
before the results were released, the union did get the
opportunity to review those results just to look at them to see
if there was some statistical imbalance. So we tried at all
levels to build in some guarantees, some assurances, and to put
as much transparency as we possibly could in the process.
One thing that I also stated earlier is that we are in the
fourth iteration of our pay-for-performance system for our
executives, and we have changed it based on the feedback that
we have received through that process. So we feel that while no
system is perfect and we have had a number of different systems
at the FDIC, we are committed to trying to refine the system
based on the feedback, based on the involvement that we have
from the individuals who are both managing it and those who are
being subjected to it.
Senator Carper. All right. Great.
Well, Mr. Chairman, you have been generous with the time. I
thank you and I thank our witnesses for their comments and
responses to these questions. Thank you.
Senator Voinovich. I want to thank the witnesses for being
here. There may be some other questions that we want to submit
to you in writing. We would appreciate your getting back to us
as soon as possible. We would like to have you stick around
some more, but we have three other witnesses and it is 5
minutes after 12 o'clock. We have got to get on with our work.
Thank you very much for coming.
Senator Voinovich. Our next witness is Morgan Kinghorn, who
is the President of the National Academy of Public
Administration. Colleen Kelley is the National President of the
National Treasury Employees Union. John Gage is the National
President of the American Federation of Government Employees.
It is good to see all of you again and welcome. Before you
sit down, if you would raise your right hand and repeat after
me. Do you swear that the testimony you are about to give this
Subcommittee is the whole truth, and nothing but the truth, so
help you, God?
Mr. Kinghorn. I do.
Ms. Kelley. I do.
Mr. Gage. I do.
Senator Voinovich. Mr. Kinghorn, if you will begin.
TESTIMONY OF C. MORGAN KINGHORN, JR.,\1\ PRESIDENT, NATIONAL
ACADEMY OF PUBLIC ADMINISTRATION
Mr. Kinghorn. Thank you, Mr. Chairman, Senator Akaka, and
Members of the Subcommittee, for inviting me to testify on a
subject that I have certainly had a personal interest during my
25-year career and my 9-year career in the private sector and
now in a nonprofit organization, about looking at the
alternative public personnel systems.
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\1\ The prepared statement of Mr. Kinghorn appears in the Appendix
on page 114.
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As President of the National Academy of Public
Administration, I am really pleased to appear before you to
provide some personal perspectives on the work of the Academy.
As you know, the Academy is an independent, nonpartisan
organization chartered by the Congress to give trusted advice.
The views presented today are my own and are not necessarily
those of the Academy as an institution.
What I would like to do is really depart from my written
testimony and reflect on what I have heard in the last 2 hours
and really give you some perspectives that are contained in my
testimony, but also really are based on my experience in both
the private and public sector on what we really should be
looking at. I think the fact that there is a consistency in
what the Subcommittee is hearing really shows the long
evolution of performance-based systems. They have been around
for a long time, and they certainly can work.
The first point I would like to make is I think the reforms
in this system are absolutely essential. The Academy, about a
year and a half ago, did ``Conversations on Public Service,''
which came out of our work on pay for performance and the
Volcker Commission. In addition, there was a survey that OPM
did about 3 years ago that I would like to share, two questions
and answers that I think go to the point.
One question that was asked was: ``My performance appraisal
is a fair reflection of my performance.'' Sixty-five percent of
the 100,000 responders in the Federal Government said yes.
There was obviously a lot of work going on in performance
appraisals. The next question, though, is a little more
interesting: ``Our organization's awards program provides me
with an incentive to do my best.'' Seventy percent of the
responders neither agreed or didn't--disagreed or strongly
disagreed. That would tell me that we have organizations that
are certainly involved in some kind of performance evaluations,
but it is unclear to me how they have been used. They certainly
haven't been used in terms of awards. So I think the system
needs to be changed and probably needs to be changed fairly
radically.
Second, you have heard a lot about the importance in these
systems at every level in the organization being involved. That
is crucial. It also ties into why, in those organizations that
are successful, it goes from the top of the organization down
to the employee, and it is nearly always tied to a strategic
plan and the objective of that organization. Without that,
there is rarely a connection between employee performance,
whether it is a manager or a working employee, and the agency's
core mission.
You have also heard, which I completely agree with, on the
transparency of the process and the transparency of the
outcomes. I think that is crucial. When I came into consulting
13 years ago, after a 25-year career in the Federal Government,
I came out of a structure where I started as a GS-9, ended as
an SES-6, and really was appalled for those 25 years at the
inability of the system to really appropriately differentiate
between the best performers and, in particular, the average or
mediocre performers.
I came into a private sector organization that had pay for
performance. However, it was often based on which partner in
the consulting business liked you or didn't like you. So when I
became a partner 2 years later, I decided to change that
process and basically created a peer review process in my
practice--it was the second largest practice in
PricewaterhouseCoopers at the time in the public sector--in
which at the end of those review processes the transparency of
the decisions to all the employees as well as the outcomes was
pretty clear. It passed the laugh test, which is an important
test to pass. Individuals may not have been happy with the
outcome, but when they looked at who was rewarded, about 18
percent of the people got cash awards or bonuses or pay
increases--not a large number--they understood why, because
there was a process in place, training in place, and everyone
from the partner down to the employee was involved in that
process.
The final thing I would like to share with you is that I
think one of our focuses needs to be on the future. Government
is transforming in a variety of ways. What government does, how
it does it, and who does it is changing radically. A lot of our
discussion appropriately focuses on the current 2 million plus
or minus Federal employees. But over the next 20 years, which
these reforms will impact, we have a different workforce coming
in from what our research tells us, one that demands different
kinds of rewards, one that wants more agility in the way they
work, more flexibility, the ability to move around quickly, the
ability to move up, and not be hampered by what appears to them
to be a very complex 25- to 30-year career process called the
General Service. So they really do expect change, and if they
don't get it, we won't be able to retain them and we won't be
able to get them.
Finally, I think we have to realize that there is a
constistancy in this change. I ran a relatively small practice
in Pricewaterhouse that was 600 people with 24 partners, but it
was part of a 35,000-person organization, all of which had pay
for performance, which worked reasonably well. But we changed
it nearly every year. We learned from the process. So I think
if we attempt to create and wait for a process that is perfect,
certainly for the individual agencies, all of whom are unique,
have unique requirements, we are never going to get there. And
with the changing nature of the workforce, where many programs
that really the primary people involved are no longer Federal
employees--they may be contractors, they may be for-profit,
they may be nonprofit, they may be grantees, people receiving
money from the Federal Government--the relationship of how we
reward performers is going to change even further in the next
10 years.
So I think clearly it is time to move on. We have learned a
lot from both the experiments that have been performed, we have
learned a lot from the private sector, and certainly from State
and local governments who have been involved in this for a long
time.
I will be glad to answer any questions the Subcommittee may
have of me.
Senator Voinovich. Thank you very much. Ms. Kelley.
TESTIMONY OF COLLEEN M. KELLEY,\1\ NATIONAL PRESIDENT, NATIONAL
TREASURY EMPLOYEES UNION
Ms. Kelley. Thank you, Chairman Voinovich, and Ranking
Member Akaka. I very much appreciate the opportunity to testify
here today.
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\1\ The prepared statement of Ms. Kelley appears in the Appendix on
page 119.
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I would like to comment specifically about three
alternative pay systems that NTEU has been involved with: The
FDIC system, which has been in effect for several years; the
Department of Homeland Security system, which is still in the
pre-implementation stage; and the IRS system that right now
only applies to managers.
I must say at the outset that I believe that these
alternative personnel systems have very little positive impact
on recruiting, retaining, and maximizing the performance of
Federal employees.
NTEU has bargained over compensation at the FDIC since
1997. While we have serious concerns about the current state of
the pay system there, we strongly believe that, in the absence
of a statutorily defined pay system, like the GS system, pay
should be subject to collective bargaining, as it is in the
private sector. Especially in a government environment,
employees and the public need a credible means of ensuring that
pay is set objectively.
NTEU is at odds with the FDIC on the current system to
determine performance pay. While the FDIC itself has stated
that ``more graduated levels of rewards are better than fewer
levels,'' it has dropped a multi-level performance evaluation
system, and the FDIC has moved to a pass-fail performance
evaluation system. Under this system employees who pass are
eligible to be nominated by their supervisor for a pay increase
that they call a Corporate Success Award.
Now, NTEU insisted that there be some guarantee that front-
line employees would have access to these Corporate Success
Awards and that they would receive some of this money, so there
is language that guarantees that at least one-third of
bargaining unit employees, front-line employees, will receive
these CSAs. But that one-third minimum might as well be a
limitation because to date the FDIC has only been willing to
recognize and reward one-third of the workforce. And the
standards for who gets these increases are vague, they are
subjective, and they are not apparent to those who are covered
by the system.
The application of this one-third limitation on the
availability of pay adjustments and its lack of transparency
have demoralized FDIC employees. Our members report that the
system is divisive, it discourages teamwork, and it sends the
message that two-thirds of the workforce are not contributing.
The previous system at the FDIC, which was based on multi-level
performance evaluations without limits on the number of
employees who could receive additional pay, did have
credibility with employees. The current system does not.
DHS. While the pay-for-performance system at DHS has not
yet been implemented, we are very concerned that it will push
employees who are already demoralized out of the agency when
the importance of keeping experienced, skilled employees is
greater than ever. Let me be clear: The employee opposition to
the proposed DHS system is not about ``fear of change,'' as
some have tried to portray it. I know firsthand that this group
of employees, who are entrusted with protecting our country
from terrorists and other criminals, is not a fearful group.
What they most object to about the proposed DHS system is that
it will make it harder, not easier, to accomplish the critical
mission of the agency.
There are several reasons for this: One, the system is not
set by statute or subject to collective bargaining as the
FDIC's system is, so there is nothing to provide it any
credibility among employees. Two, the system will have
employees competing against each other over small amounts of
money, discouraging teamwork, which is critically important in
law enforcement. Three, the system is subjective, which will
lead to at least the appearance of favoritism. Four, the system
is enormously complex, the administration of which will require
huge amounts of money that is so much more desperately needed
in front-line functions, not to mention siphoning off money
that could go for more pay in a less administratively
burdensome system. And, five, the draft competencies for the
new DHS system do not recognize or reward the real work that
these employees do to keep our country safe.
The IRS. While employees represented by NTEU are not
covered by a paybanding performance-based system at the IRS,
IRS managers are. The Hay Group, a consultant which was hired
by the IRS, did a senior manager payband evaluation on this
system for the IRS last year. Here are just some of the
results: 76 percent of covered managers felt the system had a
negative or no impact on their motivation to perform their
best; 63 percent said it had a negative or no impact on the
overall performance of senior managers; only one in four senior
managers agree that this paybanding system is a fair system for
rewarding job performance or that ratings are handled fairly
under the system; and increased organizational performance was
not attributed to this paybanding system.
The results of this IRS system are dismal, yet it is
pointed to as a model for moving the whole Federal Government
to a similar system. In fact, there is a dearth of information
to indicate that alternative pay systems have had any
significant impact on recruitment, retention, or performance.
The GAO report I mentioned in my full testimony includes
virtually no evidence that the systems improved any of those
measures. In fact, the Civilian Acquisition Personnel
Demonstration Project that was reviewed in that report had as
one of its main purposes to ``attract, motivate, and retain a
high-quality acquisition workforce.'' Yet attrition rates
increased across the board under the pilot.
NTEU is not averse to change. We have welcomed, at the FDIC
and elsewhere, the opportunity to try new things and new ways
of doing things. Based on my experience, these are the things I
believe will have the most impact on the quality of applicants
and the motivation, performance, loyalty, and success of
Federal workers:
One is leadership. Rules and systems don't motivate people.
Leaders do.
Two, opportunities for employees to have input into
decisions that affect them and the functioning of their
agencies. Employees have good ideas that management is
currently ignoring.
And, three, a fair compensation system that has credibility
among employees, promotes teamwork, is not administratively
burdensome, and is appropriately funded.
Unfortunately, I do not believe the systems that are
currently being pursued by the Administration follow these
standards. I ask that the Members of this Subcommittee closely
review and analyze what data exists on these current
alternative personnel systems that exist today. I don't think
the evidence supports their use as successful models across
government.
I thank you for the opportunity to testify and would
welcome any questions that you have.
Senator Voinovich. Thank you very much. Mr. Gage.
TESTIMONY OF JOHN GAGE,\1\ NATIONAL PRESIDENT, AMERICAN
FEDERATION OF GOVERNMENT EMPLOYEES, AFL-CIO
Mr. Gage. Thank you, Mr. Chairman, for inviting me to
testify today, and also thank you, Senator Akaka, for your
support of Federal employees, not just on this Subcommittee but
also the VA and Armed Services committees.
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\1\ The prepared statement of Mr. Gage appears in the Appendix on
page 128.
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I would like to focus my remarks today on the experience of
AFGE Local 1904 at the Army's Fort Monmouth, in New Jersey,
which has had about 5 years of experience with the Acquisition
Demonstration Project. I must say the demo at Fort Monmouth
works relatively well for two primary reasons: Collective
bargaining and funding.
Crucial aspects of the system have been established through
the process of collective bargaining, and the resulting
collective bargaining agreements are fully enforceable. Labor
and management have a respectful relationship, and the
contracts negotiated between Local 1904 and local management
reflect the good-faith efforts of both parties. In addition,
the demo portion of the pay system is funded separately and is
treated as a supplement. Virtually every employee covered
receives his regular ECI and locality increase each year. The
demo raises are on top of these regular across-the-board
increases. Although money formerly used for within-grade and
quality step increases is used for the demo, at Fort Monmouth
additional program funds have been provided to allow the
improvements in overall pay levels.
My written testimony includes a description of some of the
terms of the contract between AFGE Local 1904 and Fort Monmouth
management. As you know, a contract such as this will be
unenforceable in DOD and DHS once the NSPS and MaxHR go into
effect. In fact, managers will not even have the authority or
flexibility to negotiate with the local union or use a contract
like this to navigate the inevitable conflicts that arise over
how to implement a pay system that requires subjective
evaluations.
This contract, like all collective bargaining agreements,
reflects a balance between the rights of management and workers
subject to the constraint of mission accomplish. It reflects
the joint acknowledgment of various roles and responsibilities
and their limits.
Despite the positives I have described, the demo at Fort
Monmouth is far from perfect. Like all pay schemes that seek to
individualize pay adjustments, it raises the question of what
the system is trying to accomplish, whether those aims have
been met, whether the pay system should get credit for
improvements and results, and whether the costs associated with
administering complex, multifaceted pay adjustment processes
are offset by measurable benefits.
The most important point is that the crucial protections
for employees that are included in the Fort Monmouth demo are
absent from both NSPS and MaxHR. The classification system at
Fort Monmouth still provides a floor for an employee's salary
based on the duties and responsibilities of the job, and they
are entirely objective criteria. Collective bargaining rights
are intact and fully exercised.
The fact is that the demo at Fort Monmouth, and its
success, has far more in common with the General Schedule than
it does with either MaxHR or NSPS. Time and again the employees
at Fort Monmouth urged me to tell you that they oppose the NSPS
in the strongest possible terms and that the real reason that
their project works as well as it does at Fort Monmouth is the
strong, fair, and reliable system of checks and balances
achieved and maintained through collective bargaining.
Mr. Chairman, I know you brought up Katrina, and this past
week or so I have received incredible reports of Federal
workers, who have gone the extra mile. Social Security was down
there instantly, gave out 30,000 checks to people who would not
have gotten them through the mail or any other way. We have
pictures of VA employees standing in knee-deep water doing
their job. We received more volunteers from Border Patrol and
Homeland Security to go down there on their own to help out.
And, Senator, while you are sitting here trying to look at
how to motivate employees, provide fair compensation, then we
get hit last week with our retirement going from high three to
high five, retiree health insurance being hit, paying for
parking--and this comes to about $7 billion over 5 years. And,
Senator, it is hard for Federal employees to see anything
objective about new personnel systems, when they see in the
wings our benefits, our retirement, and our pay ready to be
slashed.
So, Senator, I would like to commend you for having these
hearings and for looking at Federal employment, but you have to
realize that a tax on our current system certainly is nothing
to do and will not help rewarding the best and brightest or
attracting the new generation of Federal employees or retaining
the ones that we have.
Thank you, Senator.
Senator Voinovich. Thank you very much, Mr. Gage.
Senator Akaka, if it is all right, I will ask you to start
asking questions. I have to excuse myself for a minute, but I
will be back.
Senator Akaka [presiding]. Thank you very much, Mr.
Chairman. I want to add my welcome to this panel, and thank you
for your testimony.
Ms. Kelley, I am concerned about what you said about the
personnel system at FDIC. I want you to know that I plan to ask
further questions of FDIC regarding the issues you raised.
Ms. Kelley. Thank you.
Senator Akaka. The FDIC, Ms. Kelley, as we know, is exempt
from the prohibited personnel practices outlined in Title 5,
other than the prohibition of retaliation for whistleblowing.
Do you believe this exemption has an impact on the number of
prohibited personnel practices at FDIC?
Ms. Kelley. We have been looking at this from a number of
angles, Senator, including the pay system, and I don't have any
data that I could share with you right now. As we come to any
conclusions or recommendations that we see as next steps, I
would be glad to provide that to you.
Senator Akaka. Thank you, also, if you don't have it now,
maybe you can provide me with recommendations on how to fix or
what you think is the way of fixing the problem.
Ms. Kelley. I would be glad to do that.
Senator Akaka. That is fair.
Mr. Kinghorn, you raise a very interesting question and a
very interesting issue in your testimony: The challenges
associated with a multi-sector workforce. These issues are
quite timely given the increasing number of contract employees
working for the Federal Government. I am particularly
interested in the first challenge you mentioned in your
testimony regarding accountability. Do you have any suggestions
as to how to assure accountability for a multi-sector
workforce?
Mr. Kinghorn. Senator Akaka, it is an incredibly growing
issue. For some agencies, perhaps like NASA where there has
been what we call multi-sector--we don't think the term
``blended workforce'' works because we don't think it is
necessarily blended or working in all cases. But in many
agencies, this is beginning to happen increasingly. So, I think
it is one of the major frustrations people have.
I think first of all, many organizations get into
alternative work without really thinking through it
strategically. I think the thing that bothers many Fellows of
the Academy is that agencies and organizations and other people
simply slip into the use of contractors, either because of
crisis situations--and there is not really a strategic thought
given to looking down the road, what could or could not happen
and then building in some defense mechanisms per se, that if
you are going to go that route, what do you really need to be
careful of? And I think we have plenty of evidence in the last
25 years where that has happened.
So one of the key questions on how you deal with it is, you
need to think about it in advance, and perhaps the Subcommittee
can have some hearings on that subject as to when you go
outside a Federal workforce or when a State goes outside its
State public service. And this is beyond outsourcing and
offshoring. What strategic thought was given to doing that? Was
it an economic decision to save money? Which it generally has
been. And have the downsides of that been examined?
I don't have any particular off-the-cuff sensibility that
it is wrong to do that, but I think it needs to be given
thought before it happens.
The other question of accountability, if you look at the
grant programs, I came out of the Environmental Protection
Agency where I worked for nearly 10 years back in the 1980s,
when the EPA obviously with its several statutes, probably 25
statutes, was really the fundamental enforcer of many of the
programs until they were delegated to the States. You fast
forward now 20 years later, and most of EPA's programs are
delegated, and they are paid for and managed through grants to
grantees, whether they be States or other organizations. And I
think that whole question of grant accountability, how do you
hold a Federal employee who is issuing those grants--and we
went through a period of 10 or 15 years where the
accountability was purposely softened because we wanted block
grants and other kinds of grants. What mechanisms do we need
for the next 15 to 20 years to hold the right people
accountable?
I was at a large department's senior executive training
session about 2 weeks ago, mainly a grantee organization, and
they are struggling with that now. What is their role in the
21st Century other than just being an oversight of grantees?
Should they have a role that looks at best practices of how the
grants are used? Should there be a stronger accountability
role?
So it really is a difficult question that not enough
thought has been given to.
Senator Akaka. Yes, I agree and I would like to ask Mr.
Gage and Ms. Kelley if they have any further comments on this.
Mr. Gage.
Mr. Gage. Well, I think on the contracting side of it,
clearly we are looking--what are there, 6 million contractor
employees of the Federal Government now with no accountability
that I can see? We have been asking for it in legislation, some
sort of accountability. I think the mix of Federal employees
and contractors on the work site is a confusing one, and it is
something that I don't think really contributes to good
government.
So I think when we are looking at pay for performance or
any type of personnel system, I think accountability, not just
for Federal employees, but also on the contractors and the work
that they do or don't do, is something that needs to be
magnified.
Ms. Kelley. And I think that will become even clearer if
you look closely at similar work done by Federal employees and
that same kind of work being done by contractors. I think,
unfortunately, we are going to see this in the very near future
as the IRS moves forward with its plan to put collection tax
accounts in the hands of private collection agencies, and there
will be private collection agencies doing the tax collection
work of the IRS instead of IRS employees. And we are going to
see, I believe, a lot of accountability questions and conflicts
here as this moves forward, and I will give you just one key
example of this.
There is a law today in effect that prohibits IRS employees
from being evaluated on dollars collected. That law was put
into place to protect taxpayers from the fear of aggressive
collection tactics by Federal employees. So IRS employees
cannot be evaluated on dollars collected. But within the next
12 months, private collection agencies are going to be paid by
being able to keep up to 25 percent of what they collect from
taxpayers. So they will be paid based on dollars collected,
which is going to raise a lot of accountability issues when it
comes to who should do this kind of work--IRS employees who are
accountable or these private collection agencies who will be
paid a bounty to do the same work.
Senator Akaka. Mr. Gage, you mentioned the proposals being
floated by some to offset the funds government is spending for
Hurricane Katrina. I share your concern with these proposals,
and I assure you that those coming under the purview of this
Subcommittee will be carefully reviewed if introduced in the
Senate. We are concerned about that, and we will certainly be
looking at it further.
Mr. Gage, the Comptroller General said in his written
testimony that the current pay system is outmoded because it
rewards length of service over performance and contribution,
automatically provides across-the-board annual pay increases,
even to poor performers, and compensates employees living in
various localities without adequately considering the local
labor market rates. And my simple question to you is: Do you
agree?
Mr. Gage. No, I don't agree. I think there are a lot of
straw men in that statement by the Comptroller General.
Some of these, when you look at the statistics on the pay
for performance, for instance, the one I testified up at
Monmouth, in 5 years two employees were unsuccessful. Two in 5
years. So that bugaboo about this system is going to weed out
the non-performer is, I think, not accurate.
Obviously, our members don't like non-performers. They work
next to them. If there is one, I think there is a peer pressure
there that gets it moving. But I don't think that saying that
the old system is outmoded because there are--this bugaboo that
the Federal Government employees just don't work. And even
under the pay-for-performance systems--and I know there is
another one in Huntsville, Alabama, and these are all
scientists. I think in 4 years there was one Federal employee
that was unsuccessful.
I would like to comment on some things that Ms. Kelley
said. First of all, the old system is old, therefore, we have
to blow it up, and to say that this system will do all these
things, there is really no information about that.
The Fort Monmouth people that we talked about in
preparation for this, they really feel that it was so much ado
about nothing, that the new system is so complex and is so
time-consuming and resource-swallowing that it really doesn't
motivate them. There is just a little bit of money involved,
and that the amount of work that has to go into it really
diverts from the mission rather than adds to it.
If I had my say, I think we could do some tinkering, some
serious tinkering with the current system, and have one that
really works, not just for scientists, but we have to talk
about those rank-and-file Federal employees who are in VA
hospitals or in Social Security. These are not the high-grade
types that most of these projects have involved. Here a
consistency and a dedication is really required and necessary
to do Social Security claims or VA service, and a lot of that
simply will not be captured--a lot of that dedication simply
will not be captured in this pay-for-performance system.
Senator Akaka. Ms. Kelley, do you agree, too? And finally I
will ask Mr. Kinghorn.
Ms. Kelley. I think broad statements about the system being
old and needing replacement are just that. They are very broad
statements that don't provide specifics. I would not say the GS
system is perfect. There are surely things that if there are
valid problems, we are more than willing to work with the
Administration and with the agencies to address those. But in
earlier testimony, just today, for example, Deputy Director
Blair said that if an employee has a pulse, they receive a
within-grade increase.
Now, I would suggest that any manager who is implementing
the current system that way should not be a manager. So once
again, the problem is with the implementation of the system,
not with the system itself. And if agencies cannot
appropriately implement the GS system that has a lot of
structure to it, then I think employees are absolutely right to
doubt any agency's ability to implement a system that doesn't
have those kinds of structures, that doesn't provide for
transparent and fair criteria.
If the within-grade increase needs a framework around it as
to what employees need to do to achieve that, then tell the
employees what that is, and they will be glad to strive for
that and to accomplish it. The things that need fixing are
within the system, and the bigger problem, as far as I can see,
across the board is implementation of the system. It is not the
system itself. It is how agencies and managers implement it.
That is only going to get worse in a system that is much more
vague, which is exactly the road that all of these agencies are
headed down, the ones that have the authority today and where
the DHS and DOD and this Administration's proposal are going.
Senator Akaka. Mr. Kinghorn.
Mr. Kinghorn. I think the objective of a performance
system--and performance-based pay is one system. Over time my
goal was, and still is in my own organization, which has one,
is ultimately not to have anyone that is a poor performer. So
the fact that in a system after a couple of years there were no
poor performers could be the fact that grade creep has happened
again, or it could be simply that the performance system, the
ones I am familiar with, ultimately drives out the people that
are poorer performers. But that is not the objective per se.
The objective is to reward people, and that is the second step.
Again, in systems that I have been familiar with, both in
my current job and previously, is that the performance system
measured performance, and then even people in the organizations
I worked in that received satisfactory, and sometimes above
satisfactory, did not receive pay. At the consulting firm, I
think we had 2.2 percent of pay to reward people. That doesn't
sound like a lot of money, and it may not have been, but that
is what we had. So we had a very high standard, and that is why
people talked about the transparency of getting there was
critically important, because you were not rewarding
satisfactory people in that system, and you weren't even
rewarding above average people.
So if you didn't have transparency, it would have fallen
apart, and in that practice, we improved retention. At one
point we had about a 36-percent attrition rate in consulting,
in the consulting business. That dropped down to 14 percent.
Some of that was market, but some of it was the fact that
people understood the performance system was much fairer.
So you have to differentiate how you measure performance, I
think, and its objectives, which can be different for different
places, and then in that performance structure, with all the
people you have, how do you use your reward system to provide
the rewards? And some organizations might want to go down to
satisfactory. Others want to stay at a higher end because they
have certain objectives. And, again, as I suggested, you review
that and the way you use both the system itself and the reward
mechanisms might change, because your organization may change.
Very different for NIST than it would be for IRS.
Senator Akaka. Thank you, panelists. Thank you, Mr.
Chairman.
Senator Voinovich [presiding]. Thank you, Senator Akaka.
I am a little perplexed because we are moving forward with
MaxHR at DHS and NSPS at the Department of Defense. What I hope
that we get out of this hearing today is some benchmark
information that should be followed implementing alternative
systems in a fair way. I think we heard some good things about
involving employees, and I would hope that we continue to get
input from the unions on things that could be done
administratively or legislatively.
I am interested in hearing from you and your members in
those agencies under an alternative personnel system, including
the Department of Defense's NSPS that are the first to
transition in--what do you call them again?
Mr. Gage. Spirals.
Senator Voinovich. Spirals, thank you. We must get as much
information on the transition as we possibly can from you. Ms.
Kelley, do you represent anybody at the DFAS in Columbus?
Ms. Kelley. No.
Mr. Gage. We do.
Senator Voinovich. That is right. You have a strong, active
union there. I think I have met with the woman who leads that
local.
Mr. Gage. That is right. Patty Viers.
Senator Voinovich. Yes, she is terrific. I would really
like to have input from people like Ms. Viers and others, so we
can monitor and make corrections if necessary.
Also, I was pleased to hear that OPM understands that there
are many things that need yet to be done in terms of preparing
for this. For example, having in place a performance evaluation
system period, whether unionized or not, I think people like to
know whether they are doing good or whether they need to make
improvements. I think that helps everyone.
So I just would like to say to you that we are going
forward. It seems to me that we also ought to be looking at the
kinds of employees involved in the various alternative
personnel systems. Ms. Kelley, you just mentioned that there is
a stark difference between NIST and other agencies. It is a
whole different culture when competing for Ph.Ds, and if you
didn't have a pay-for-performance system in place, you may not
get them to come to work for you, and for sure they wouldn't
stay very long.
I think that there has to be some distinction between types
of employees and a need to maintain comparability with the
private sector. What kind of a system do agencies have in place
in order to attract employees? And then once they are on board,
how do you get them to stay?
So I think maybe that is the direction that I would be
interested in directing your reaction to. Maybe that is the
direction that we should go and to make sure that this isn't a
one-size-fits-all because if we do, I don't think we are going
to be successful for anybody.
Any reaction?
Senator Akaka. Mr. Chairman, let me say that I am so
pleased to hear your comments on MaxHR at DHS and also NSPS at
DOD. And I want you to know I look forward to working with you
and your employee organizations on this. Thank you.
Senator Voinovich. Thank you.
Would you like to comment on what I just said?
Mr. Gage. Well, I agree with you. I think to say that we
are going to have pay for performance, it is going to be based
on these competencies and thrown out there, when most of the
experience comes from scientists and that we really haven't
looked at the broad scope of Federal employment, and as we have
been saying all along, I think this is a disaster for law
enforcement. I don't even think you should try it. I think in
many of our other jobs where there is such a team element, I
don't think it is going to work there either.
So I really respect and appreciate your comments that we
have to try, since we are going down this road, but we
definitely have to customize it to the different agencies and
the different jobs.
Ms. Kelley. In my view, the accountability is what needs to
be there, though, for the agencies because absent a collective
bargaining agreement or a statutory definition of what their
system is, they will be left to their own devices. And if there
is not the leadership, if there is not the employee
involvement, if there is not the transparency and the funding,
it will fail. And the evidence or the facts as we have lived
them, that I have presented in my testimony, are to highlight
that, our biggest fear right now is that there are--we know
that NSPS and MaxHR are moving forward. That is very clear. But
the models that are being pointed to as a reason to expand
governmentwide are full of flaws, and they should not be held
up as a model to expand.
There will be a lot of things I believe that can be learned
from the DOD and DHS implementation. They are still in the pre-
implementation stages. This rush to point to other systems in
place--like the IRS management system. If the IRS managers who
are under it give the feedback to the consultant hired by the
IRS that we have in the report, these are the same managers
that are then going to be responsible for implementing a
paybanding system someday for the front-line employees? I mean,
it is doomed to failure if that system is looked to as a model
for something that should be rolled out in that or any other
agency.
For whatever reason, there seems to be a resistance or a
hesitancy to acknowledge the flaws in these systems and to
learn from them, and also to look and see what we can learn
from DOD and DHS. You have such a variety of occupations within
both of those agencies that cut across the gamut of Federal
employees if you look at all of the employees in DHS and DOD.
So you are going to have this wide range of everything from IT
workers to accountants to lawyers to scientists to engineers,
so all that experience will be there. And yet there seems to be
no interest in seeing what can be learned from that and instead
trying to point to these other APSs as models. And there is not
one of them that I think employees should trust as the model
that their system should be based on.
So that is what I would ask, is for your help to
acknowledge that there is a lot to learn, not because they can
be applicable in every agency, but there will be things that
should be looked to and not to buy into the reports that are
issued about how great these other models are.
Ask the employees who are living under them, and that is
what I did before I submitted my testimony. And I do it every
time I visit with them, and the feedback is consistent that
these are not systems that should be in place for them today,
much less be held up as a model anywhere else.
Mr. Kinghorn. I think it would be unfortunate for the other
million employees not covered by some of these new systems
either to become at a competitive disadvantage in terms of the
flexibilities of the systems but also just the confusion that
could arise. So I certainly would support much like what the
Administration has proposed. And if you look at the DOD and
Homeland Security, 85 percent of it is probably very similar.
There are some key differences, certainly, in the appeals
process and collective bargaining, which I think are
appropriate for discussion. But I think it would be unfortunate
to have the rest of the million doing it piecemeal, either
agency by agency, bureau by bureau. So I think that would be
important to proceed.
I think it does need a set of core values to work with what
are many of the key elements under Title 5, everything from
diversity in the workforce to inherently governmental work
defined. And I think there does need to be a criteria in which
OPM needs to look at these flexible authorities before
implemented. But I really look toward the future of the civil
service, and this civil service system does not attract and I
don't think will hold the kind of workforce that we are going
to require in the next 20 years. Again, they need more agility.
They need a different look at what career means. For them,
career is going to be coming and going. It is going to be rare,
I think, we can keep someone for 20 years in any organization,
public or private. And if they see a system that prevents them
from easy entry and easy exit and coming back perhaps, I think
it will be difficult to attract the new government.
People don't like to change. I am no different than anyone
else, and you have 2 million Federal employees, all of whom are
dedicated. But I think we need to also look toward the new
employees that we are going to be bringing in over the next two
decades.
Senator Voinovich. That is interesting. As I observe the
workforce around the country, there are less and less places
that you can go and have some sense of having a career. I think
that is a real advantage in the Federal workforce. Individuals
can come and work until retirement. I think people are looking
for an opportunity where they can make a contribution, but at
the same time have some security because there is such
uncertainty today in the private sector.
Mr. Kinghorn. I think it is mixed. I think as Mr. Gage has
indicated--and I think we talked about it before--what might
make sense for the IRS in its existing service centers, for
example, or for law enforcement it may be different. But a lot
of what I think government is going to be doing--and, again,
this diverse workforce we are working with. What I have seen in
terms of people I hired and I see people going in from the
private sector finally, I don't see them interested
particularly in many cases in a 20- or 25-year career anywhere.
Some agencies have had to deal with that. If you go to PTO
or go to SEC, many people go into those organizations at a very
young age out of school to get experience of how to understand
the SEC and they leave. I think that concept is increasing.
I agree with you. I enjoyed a 25-year career. But, I don't
think I am completely reflective of the new workforce that is
coming in. But, clearly, there will be people that like the
security, like the excitement, and do want to stay 30 years.
But I am not sure the current system also rewards them in the
appropriate ways, either.
Senator Voinovich. It is interesting that Mr. Walker always
talks about how well reform has worked. He is very careful to
explain how elements are in place before reforms are
implemented. The real question is are we going to commit the
resources so that agencies can dot the I's and cross the T's so
that new systems are successful? That is my real concern about
all of this that we are undertaking.
Also, I have to say this to you, Senator Akaka. I think
that a lot of our colleagues don't get it. I don't think they
do. I don't think a lot of our colleagues understand how
important people are in the Federal Government and how
important they are to the system. We are going to do oversight
of FEMA, but I am going to be really interested to see what
happens at the Department of Homeland Security. In creating the
Department, people from one organizational culture were merged
with people from another. I would not be surprised if people in
FEMA left because they didn't like the merger. We had hearings
and witnesses testified that employees were leaving because of
changes in the culture of the new organization.
So all of these things, I think, have to be examinted. We
ought to consider what do agencies have to do to compete to get
the people that they need. Then Congress must act. Implementing
reform so it cascades, rather than doing massively across the
board may be more effective. Your point is it should be
available to all the agencies. The fact of the matter is that
if you don't commit the resources, then it is not going to
work.
Mr. Kinghorn. I would concur with that. I think everyone
today I heard said that. Even in a small organization, in
consulting, every partner is directly involved. And when we
went through the evaluation process, we basically shut the
place down for 5 days with the people involved and went through
the evaluations. It is an enormous undertaking, and we knew
what to expect. We were trained at what to expect. We were
trained in a system that was different. And I think everyone's
concerns about that issue, I think you need to monitor that and
keep oversight on it.
Senator Voinovich. I just went through mine with my chief
of staff. I am still not finished with it. I think the whole
process is going to take 4 to 5 hours. I just think it is
easier said than done. In some areas--maybe, Mr. Gage, you
point out that because of the nature of some jobs, a different
personnel system is needed. But we are moving, and the idea is
moving, and we must do it right.
Senator Akaka.
Senator Akaka. Mr. Chairman, I just want to tell you that I
am concerned, as you are. There are those who feel that this is
a program of the future. My concern is trying to overlay this
throughout the whole system at one time. We should consider
limiting this. Now that we have it at DHS and DOD, we should
limit it to those two organizations and see how it works before
expanding it to the total system, and we should correct
whatever needs to be corrected before it is expanded.
I would look forward to discussing that possibility. Thank
you, Mr. Chairman.
Senator Voinovich. Thank you for being here today.
[Whereupon, at 1 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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