[Senate Hearing 110-814] [From the U.S. Government Publishing Office] S. Hrg. 110-814 IMPROVING PERFORMANCE: A REVIEW OF PAY-FOR-PERFORMANCE SYSTEMS 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 TENTH CONGRESS SECOND SESSION __________ JULY 22, 2008 __________ Available via http://www.gpoaccess.gov/congress/index.html Printed for the use of the Committee on Homeland Security and Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 44-579 WASHINGTON : 2009 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gov Phone: toll free (866) 512-1800 Fax: (202) 512-2250 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS JOSEPH I. LIEBERMAN, Connecticut, Chairman CARL LEVIN, Michigan SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio MARK L. PRYOR, Arkansas NORM COLEMAN, Minnesota MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia JON TESTER, Montana JOHN E. SUNUNU, New Hampshire Michael L. Alexander, Staff Director Brandon L. Milhorn, Minority Staff Director and Chief Counsel Trina Driessnack Tyrer, Chief Clerk OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE, AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE DANIEL K. AKAKA, Hawaii, Chairman CARL LEVIN, Michigan GEORGE V. VOINOVICH, Ohio THOMAS R. CARPER, Delaware TED STEVENS, Alaska MARK L. PRYOR, Arkansas TOM COBURN, Oklahoma MARY L. LANDRIEU, Louisiana JOHN WARNER, Virginia Richard J. Kessler, Staff Director Thomas J.R. Richards, Professional Staff Member Jennifer A. Hemingway, Minority Staff Director Jessica K. Nagasako, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Akaka................................................ 1 Senator Voinovich............................................ 14 WITNESSES Tuesday, July 22, 2008 Hon. Linda M. Springer, Director, U.S. Office of Personnel Management..................................................... 3 Richard A. Spires, Deputy Commissioner for Operational Support, Internal Revenue Service....................................... 5 Gale Rossides, Deputy Administrator, Transportation Security Administration, U.S. Department of Homeland Security........... 6 Ronald P. Sanders, Associate Director of National Intelligence for Human Capital, Office of the Director of National Intelligence................................................... 8 Bradley Bunn, Program Executive Officer, National Security Personnel System, U.S. Department of Defense................... 10 J. Christopher Mihm, Managing Director of Strategic Issues, U.S. Government Accountability Office............................... 12 Carol A. Bonosaro, President, Senior Executives Association...... 29 John Gage, President, American Federation of Government Employees 31 Colleen M. Kelley, National President, National Treasury Employees Union................................................ 33 Jonathan D. Breul, Executive Director, IBM Center for the Business of Government, and Partner, IBM's Global Business Services....................................................... 35 Charles H. Fay, Professor, School of Management and Labor Relations, Rutgers University.................................. 36 Alphabetical List of Witnesses Bonosaro, Carol A.: Testimony.................................................... 29 Prepared statement........................................... 119 Breul, Jonathan D.: Testimony.................................................... 35 Prepared statement........................................... 161 Bunn, Bradley: Testimony.................................................... 10 Prepared statement........................................... 82 Fay, Charles H.: Testimony.................................................... 36 Prepared statement........................................... 165 Gage, John: Testimony.................................................... 31 Prepared statement........................................... 134 Kelley, Colleen M.: Testimony.................................................... 33 Prepared statement........................................... 149 Mihm, J. Christopher: Testimony.................................................... 12 Prepared statement........................................... 94 Rossides, Gale: Testimony.................................................... 6 Prepared statement........................................... 62 Sanders, Ronald P.: Testimony.................................................... 8 Prepared statement........................................... 68 Spires, Richard A.: Testimony.................................................... 5 Prepared statement........................................... 54 Springer, Hon. Linda: Testimony.................................................... 3 Prepared statement........................................... 49 APPENDIX Chart submitted by Ms. Kelley.................................... 177 Background....................................................... 178 Federal Managers Association (FMA), prepared statement........... 191 Letter to Senator Akaka from Carol A. Bonosaro, dated July 28, 2008........................................................... 198 Questions and Responses for the Record from: Ms. Springer................................................. 199 Mr. Spires................................................... 207 Ms. Rossides................................................. 209 Mr. Sanders.................................................. 221 Mr. Bunn..................................................... 235 Mr. Mihm..................................................... 245 Ms. Bonosaro................................................. 248 Mr. Gage..................................................... 250 Ms. Kelley................................................... 253 Mr. Breul.................................................... 258 Mr. Fay...................................................... 260 IMPROVING PERFORMANCE: A REVIEW OF PAY-FOR-PERFORMANCE SYSTEMS IN THE FEDERAL GOVERNMENT ---------- TUESDAY, JULY 22, 2008 U.S. Senate, Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia, of the Committee on Homeland Security and Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 2:06 p.m., in room 342, Dirksen Senate Office Building, Hon. Daniel K. Akaka, Chairman of the Subcommittee, presiding. Present: Senators Akaka and Voinovich. OPENING STATEMENT OF SENATOR AKAKA Senator Akaka. This hearing will come to order. I want to thank all the witnesses for being here. It is good to shake your hands and to see you again, and especially I am glad to see Director Linda Springer. As many of you know, Director Springer announced that she will step down next month. I want to take this opportunity to thank her for her many years of public service and wish her the best of luck in the future. Ms. Springer, it was a pleasure to work with you and you have done a great job in the time that you have been here. God bless your way. Today, the Subcommittee will examine pay-for-performance systems across the Federal Government. We have a full hearing today, so I will try to keep my opening remarks brief. Pay-for-performance systems have increased in the Federal Government out of a desire to improve the link between an employee's pay and his or her performance. Ideally, the better someone performs, the greater their pay. Since the Department of Navy demonstration project at China Lake began in 1980, the Federal Government has tinkered with pay and performance systems outside of the General Schedule (GS). The authority to implement pay-for-performance systems have been given to Federal agencies for employees in the Senior Executive Service and to the Internal Revenue Service, the Federal Aviation Administration, the Department of Defense, Transportation Security Administration, the Department of Homeland Security, components in the intelligence community, the Government Accountability Office, and many other agencies. When Congress granted Federal agencies statutory authority to develop pay-for-performance systems, employee and management groups expressed many concerns with the ability of Federal agencies to design systems that are transparent, fairly evaluate employees' performance, provide a fair appeals process, include employees and their representatives in the design and implementation of these systems, provide sufficient training to managers and employees to implement systems, and budget sufficient funds to properly reward employees for their performance. I share many of these concerns, which unfortunately have become reality. Federal pay-for-performance systems have often been modified from those in corporate America to address budgetary constraints. I continue to hear from employees that their performance rating and pay awards depend not only on their performance, but rather on that of other employees who are in competition with too limited resources to reward performance. If the Federal Government is serious about new and more rigorous pay-for-performance systems, it must invest in those systems with enough money to provide a real performance incentive. Part of this investment requires taking the extra time and effort to ensure that employees are involved in the development of these systems and have a clear understanding of how they operate. According to the last SES human capital survey, nearly 30 percent of respondents do not understand how increases in their salary and bonuses are determined. The 2007 DHS employee survey found that 55 percent of TSA employees do not believe their pay is based on their performance, and 48 percent do not believe their pay awards depend on how well they perform their jobs. If employees do not understand their pay system, or think it is unfair, it will not work. Moreover, employee buy-in is essential to the government's effectiveness and efficiency. If employees are not involved and their concerns are not addressed, morale will drop and hinder agency mission. A recent report from the DHS Inspector General on TSA's responsiveness to address employee concerns acknowledges that low employee morale at TSA continues to be an issue and can contribute to high attrition rates. The estimates for TSA's attrition rate range from 17 to 20 percent. This is too high.\1\ --------------------------------------------------------------------------- \1\ The chart from TSA appears in the Appendix on page 177. --------------------------------------------------------------------------- The GS system is not perfect. However, there are clear rules on how employees will be paid and under what circumstances pay increases are awarded. I am worried that we are spending hundreds of millions of dollars to transition away from the GS into new pay-for-performance systems at the cost of employee morale and agency mission. I look forward to hearing from our witnesses on the implementation of pay-for-performance systems in the Federal Government. My friend, colleague, and Ranking Member, Senator Voinovich, will be here shortly. So let's proceed to the first panel. On our first panel this afternoon is Linda Springer, Director, U.S. Office of Personnel Management; Richard Spires, Deputy Commissioner for Operational Support, Internal Revenue Service; Gale Rossides, Deputy Administrator, Transportation Security Administration; Dr. Ronald Sanders, Associate Director of National Intelligence for Human Capital, Office of the Director of National Intelligence; Brad Bunn, Program Executive Officer, National Security Personnel System, U.S. Department of Defense; and Christopher Mihm, Managing Director of Strategic Issues, Government Accountability Office. As you know, our Subcommittee requires that all witnesses testify under oath. Therefore, I ask all of you to please stand and raise your right hand. Do you solemnly 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? Ms. Springer. I do. Mr. Spires. I do. Ms. Rossides. I do. Mr. Sanders. I do. Mr. Bunn. I do. Mr. Mihm. I do. Senator Akaka. Thank you very much. Let it be noted for the record that the witnesses have answered in the affirmative. Before we begin, I want to remind all of you that although your oral statement is limited to 5 minutes, your full written statement will be included in the record. Director Springer, will you please begin with your statement. TESTIMONY OF HON. LINDA M. SPRINGER,\1\ DIRECTOR, U.S. OFFICE OF PERSONNEL MANAGEMENT Ms. Springer. Thank you, Mr. Chairman. I want to take a moment to thank you for the wonderful working relationship that you have led, along with Senator Voinovich, with the Office of Personnel Management (OPM), and with me personally during these years. It couldn't have been a more professional and more effective relationship. I thank you for your support and your interest in the workforce and for the work we have done together. So thank you very much, sir. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. Springer appears in the Appendix on page 49. --------------------------------------------------------------------------- I want to talk today specifically about our progress with alternative pay systems in the Federal Government. OPM has been very active in monitoring these programs and in supporting implementation. In 2007, we issued three major reports on progress and today I would like to characterize just how we have been evolving in the Federal Government in this area. There are three main periods of time that I want to comment on: The 25-plus years of alternative pilots and programs prior to 2004, the three major legislative initiatives that occurred after 2004, and then the current activities. So, that will sort of be the framework for my comments. For those older alternative systems that began, as you said, in 1980 with the China Lake project, OPM maintains an archive of data that we use to evaluate these programs and how they are doing. In 2005, we issued a report summarizing these 25 years from 1980 on and reached several conclusions as a result of our work. Among those were that performance, rather than tenure, drove pay in those systems. Success of the systems depended on effective implementation. And that over time, with the proper implementation, employees did support alternative pay systems. It was noted that progress in some organizations was slower than others, as you would expect with new programs, but that overall, there were clearly positive trends. Now, beginning in 2004, several legislative initiatives covered large groups of employees. The Senior Executive Service (SES) has been covered by a program that was required to make distinctions based on performance and certified by OPM with Office of Management and Budget (OMB) concurrence. In 2004, 76 percent of the SES members were covered by certified programs. Over the past 3 years, that has grown to 99 percent. Virtually all of these programs now meeting certification. OPM recently conducted a survey of SES members, and among other things, we asked about the system, and we found that 93 percent of the SES believe that their pay should be based on performance, and 91 percent believe that they should be held accountable for achieving results. I think that is a testimony to the high performance standards of the Senior Executives. We work closely with Chief Human Capital Officers to promote and to communicate the best practices of the SES. There is more to do and we are continuing to work collaboratively with the Chief Human Capital Officers to help this program work even better. The National Security Personnel System (NSPS) has been a focal point for OPM. We work closely with the Department of Defense (DOD) on regulations, including the more recent ones that are required by the 2008 Defense Authorization Act. Our review of NSPS, as we have said in our published report, indicates that both employees and supervisors are developing a better understanding of expected performance and how their jobs link to the organization and to performance ratings and pay. The Department of Homeland Security (DHS), the third major system as a result of legislation, has not progressed to that same point, although the TSA has initiated its own Performance Accountability and Standards System and the information on that has been provided separately in the testimony provided to the Subcommittee. Currently, OPM has been working with agencies that of their own initiative believe they are ready under a demonstration program authority to test on a very measured basis performance- based systems for components of their agencies. These are not large projects. They are very self-contained and measured. They range from around 100 people up to maybe 2,500. There are currently five demonstration projects underway and they really are a logical step after that component of an agency has established the right performance infrastructure and they believe they are ready to move to test and learn from how a performance-based pay system could work. As I mentioned in the beginning of my remarks, OPM has issued a report on the status of all performance-based pay systems from all of these periods. Our report concluded that pay-for-performance systems continue to be successful and provide a strong link between pay and performance rather than under systems where longevity is an important factor. It only comes after effort and hard work, but we believe that these systems are better able to recruit and retain a high-quality workforce. I am personally convinced that pay-for-performance systems can be effective for the Federal workforce when they are done properly. Mr. Chairman, I thank you again for the opportunity to be here today and look forward to answering your questions. Senator Akaka. Thank you very much, Ms. Springer. Mr. Spires. TESTIMONY OF RICHARD A. SPIRES,\1\ DEPUTY COMMISSIONER FOR OPERATIONAL SUPPORT, INTERNAL REVENUE SERVICE Mr. Spires. Thank you, Chairman Akaka. I am pleased to be here today to discuss the IRS's efforts to implement pay-for- performance and respond to any questions from the Subcommittee. It is an important issue as the Federal Government continues to look at ways to recruit and retain talented managers. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Spires appears in the Appendix on page 54. --------------------------------------------------------------------------- While I have worked at the IRS in various capacities since 2004, I have spent more than 20 years in private industry where pay-for-performance is commonplace, and from the perspective of the companies with which I was associated, has had great success. I recognize that there is not a perfect correlation between government and private enterprise and what works in one may not in the other. And in my 4-plus-year tenure at the IRS, I have seen some of the reasons why. However, the development of a strong pool of talented employees is such a critical issue for any enterprise that it is important that innovative programs be attempted. In many respects, the IRS has been at the forefront of the pay-for-performance program in the Federal Government. We have been dealing with it for over 7 years as we have implemented such a system for our more than 7,000 managers. Though there have been some bumps along the way, the creation of pay bands and compensating employees for the quality of their work rather than their tenure with the agency has helped the IRS respond to the challenges presented in turning the agency into a modern and more efficient organization. My written statement lays out much of the background of how we got into pay-for-performance and describes in some detail how we implemented the program and discusses some of the obstacles we faced. I want to focus my remarks this afternoon on two things. First, I want to outline the areas in which pay- for-performance has benefited our agency. Second, I want to offer some of the lessons we have learned so that other agencies that follow us can benefit from our experiences and have an easier transition. Perhaps the greatest benefit of pay-for-performance for the IRS has been the opportunities afforded us in implementing the dramatic overhaul of the agency mandated by the IRS Restructuring and Reform Act of 1998. Specifically, the implementation of a new performance management system allowed us to link manager performance to the functional goals of the organization. Managers and their supervisors jointly develop specific performance commitments as part of annual performance plans that are designed to further the goals of the functional unit and the IRS. The pay flexibilities have enabled IRS to strengthen the linkage between manager performance and the overall IRS goals. In addition, the overall job satisfaction among our managers, based on annual employee survey results, has been on an upward path since 2005. Despite these benefits, the road has not always been smooth and without controversy. Let me offer several lessons we have learned, and frankly are still learning, that may benefit other agencies in the Federal Government. First, agencies should move deliberately and cautiously to implement the program that is right for their organization, recognizing that any change in the way employees are paid will raise concerns on their part. Second, communication is critical. Employees must understand how the program will work and how they will be affected. There must also be forums to have their questions answered. Third, an effective performance evaluation system must be in place. Employees must understand the basis for their evaluation, and there should be a review system in place to make sure evaluations are being made on a consistent basis. Fourth, supervisors and employees must be trained properly on how to use the system and make sound evaluations. Fifth, ongoing program evaluation is essential to ensure that the pay-for-performance system is operating as intended, and agencies must be willing to modify and revise to meet the changing needs of their organization. And finally, evaluations must be made free of any discrimination based on race, gender, age, or national origin. I am proud to say that an overall evaluation of the IRS program by a third-party contractor found that since fiscal year 2004, there have been no disparate impact on any group of managers. The contractor analyzed the trends of the ratings data grouped by race, gender, age, and national origin. In each group, ratings trended in a similar path to the average ratings across all groups. Thank you again, Mr. Chairman, for the opportunity to be here and I will be happy to respond to any questions. Senator Akaka. Thank you very much, Mr. Spires. Ms. Rossides. TESTIMONY OF GALE ROSSIDES,\1\ DEPUTY ADMINISTRATOR, TRANSPORTATION SECURITY AGENCY, U.S. DEPARTMENT OF HOMELAND SECURITY Ms. Rossides. Good afternoon, Chairman Akaka and Ranking Member Voinovich. I am pleased to be here today to discuss TSA's progress on our pay-for-performance system known as PASS. I am honored to represent the thousands of TSA employees, our Transportation Security Officers, who serve to ensure the safety and security of two million passengers a day. These women and men are dedicated security professionals with one of the most difficult jobs in government. These officers are the most tested in the Federal workforce. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. Rossides appears in the Appendix on page 62. --------------------------------------------------------------------------- Twenty-two thousand of our officers have been with TSA from the beginning. They have participated in the largest stand-up of a Federal agency in 50 years. They have stayed with us as we have responded to the evolving threat by continuously enhancing the security processes while also helping us build the infrastructure and the human capital system to properly pay, train, reward, and recognize their performance. They stayed for the mission. There are two reasons TSA relies on pay-for-performance. Security is the first and foremost. Second, it is to instill a culture of high performance and accountability in our workforce. Performance on the job has a special meaning to us. Let me be very direct. Our job is to stop a terrorist attack. Our officers work in an environment in which 99.9 percent of the people they see every day are not a threat, but the threats against our aviation system remain. TSOs want to get passengers through the security check point with a high degree of confidence that they have stopped anyone seeking to do harm. Your safety is their priority. How does PASS improve security? When you get paid more to do a better job, you do a better job. PASS is targeted to reward excellent performance. That is an incentive to perform at the highest levels to which you are capable. PASS rewards the individual performance necessary to achieve TSA's organizational goals and that increases security. TSA's pay-for-performance system is driven by validated data. Its performance metrics are standardized, measurable, observable, and almost completely objective. PASS has been adjusted based on the feedback from our officers about what the real job is. Our officers have told us that they want a pay- for-performance system because they know what is at stake. They want to know that their fellow officers are equally competent. But building a pay-for-performance system takes time. It takes employee engagement. It takes leadership. It takes flexibilities in the human capital system. It takes continuous improvement. And it takes constant communication. But for us, it is essential. In my 30 years of Federal service, 23 of them with the General Schedule, I have never been more sure of anything. The pay-for-performance system is the best way in this post- September 11, 2001 environment for TSA to manage and ensure the quality of persons on the front line. The effectiveness of PASS is proven by the statistics. More than half of our TSO workforce has been on the job for 4 years or more. TSA supervisors have a significant stake in the PASS program, as well. Successful implementation of the program is a component of their own PASS ratings. At TSA, pay-for-performance ensures the technical proficiency of the people on the front line. Our goal is for our officers to be switched on and always at the ready. Pay- for-performance drives their higher level of performance because their earning power is directly tied to their learning power. The senior leadership of TSA is passionately dedicated to its people and to the principles of pay-for-performance. We are committed to using the flexible human capital system provided under ATSA to make TSA a model performance-based organization. We are building a culture in which our workforce is actively engaged. It is through listening and working collaboratively with all of our officers to find solutions that will continue to meet our challenges. While significant advancements are being made in our technology and our security processes, each day's success begins and ends with our officers. They are TSA's greatest investment. They are everyday heroes. In this War on Terror, the individual motivation of our officers to excel is critical to our success. We rely on the best to do the best at the security job, and pay-for-performance is vital to sustaining this top-performing workforce. I look forward to answering your questions. Thank you. Senator Akaka. Thank you very much, Ms. Rossides. Dr. Sanders. TESTIMONY OF RONALD P. SANDERS,\1\ ASSOCIATE DIRECTOR OF NATIONAL INTELLIGENCE FOR HUMAN CAPITAL, OFFICE OF THE DIRECTOR OF NATIONAL INTELLIGENCE Mr. Sanders. Good afternoon, Mr. Chairman and Senator Voinovich. Thank you for the invitation to testify at today's hearing. It is my pleasure to provide a status report to this Subcommittee on one of the Intelligence Community's most important strategic human capital initiatives, the National Intelligence Civilian Compensation Program. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Sanders appears in the Appendix on page 68. --------------------------------------------------------------------------- Our program is modeled after the National Geospatial Intelligence Agency's innovative performance-based pay system, which has been operating successfully for a decade. The product of over 2 years of extensive interagency collaboration, the NICCP's five enabling IC directives have now been issued by the Director of National Intelligence. However, because of our complex statutory context, they will be implemented via departmental and agency personnel regulations. For example, DOD will do so with authorities established under Title 10 of the Code, CIA under Title 50, and so forth. Why are we doing this? Today's complex national security challenges underscore the need for an IC workforce that is second to none. Outmoded civilian personnel policies and practices, especially those dealing with pay and performance management, are an impediment to excellence. The NICCP will replace them with a 21st Century pay and performance management program that is far more performance-based and market sensitive. In so doing, it will also transcend departmental and agency boundaries to better integrate and unify the Intelligence Community, while rewarding and reinforcing behaviors that are transformational in their own right, such things as analytic integrity, collaboration and information sharing, and critical thinking. Further, the program will, to the extent permitted by law, assure a level playing field among our 17 agencies, most of which are in six cabinet departments. Most of the major IC agencies are not covered by Title 5. When you add them to those that are, you have six separate statutory personnel systems in the IC, each with different authorities and flexibilities. Employee input has played a significant part in our design process. According to our surveys, less than a third of our employees believe their pay depends on how well they perform. Conversely, less than a third of our workforce believes that management takes steps to deal with poor performers. These results suggest that a majority of the IC's employees want a stronger link between performance and pay, but they also have concerns. We heard as much in a series of focus groups we held in each of our major agencies. In all, several hundred employees and supervisors were involved. We have tried to address those concerns in our final design. With the final IC directives all signed, departments and agencies have begun communicating these changes to employees through dozens of town hall meetings and focus groups, websites and satellite broadcasts, even blogs. These efforts have reached thousands of employees and will continue throughout our implementation. Our directives establish rigorous safeguards and oversight mechanisms to ensure that our system is credible, transparent, and above all, merit-based. For example, the directives require that all employees receive written performance expectations up front, with final ratings subject to at least two levels of management review, one of which is at the agency level specifically intended to protect against unlawful discrimination. The directives also prohibit ratings quotas and forced distributions, and to ensure transparency in the performance pay process, they establish a standard mathematical formula and two additional levels of management review to ensure consistency and fairness in pay decisions. We have also begun delivering a comprehensive training curriculum for managers, HR specialists, and employees that not only covers the technical aspects of the system, but the soft skills that are just as critical. Those involved in the performance pay process get even more instruction, including training to identify and correct any implicit or unintentional bias against protected classes of employees in the performance evaluation and performance pay process. Finally, the directives establish an IC human capital board to oversee the entire effort. Chaired by the Principal Deputy Director of National Intelligence, the board is comprised of the deputy directors of each of our intelligence agencies--the senior career officials--as well as the IC's Chief of EEO and Diversity. The system is fully funded in the National and Military Intelligence Programs of record and will be phased in over the next 5 years. It will be implemented agency by agency, with DIA this fall, with most remaining defense agencies and part of the FBI implementing through the end of 2009. The CIA and the Office of the Director of National Intelligence will follow about a year after that. In each case, performance pay decisions will typically follow 12 to 15 months thereafter, so we are approaching this with all deliberation. However, phases will ultimately be event-driven based on the readiness of each IC agency to proceed, not a calendar date. To implement this program throughout the IC, we need some additional authorities and assistance from the Congress. As it stands today, our smaller elements, those covered by Title 5, do not have the statutory authority to implement the system. To remedy this, the Administration's 2008 intelligence authorization proposed that the DNI be authorized to extend flexibilities that Congress has given one IC agency to those that may not have it to keep the playing field level. As it did last year, the Senate Select Committee on Intelligence has included this provision in its Intelligence Authorization Act, S. 2996, and we ask for your support. In conclusion, the NICCP is an essential ingredient of the IC's transformation. The first pay-for-performance system that is truly interdepartmental and interagency in nature, it was conceived through intensive collaboration and the final result will help the IC develop a stronger sense of unity and common purpose. That translates into mission success, the ultimate aim of the Intelligence Reform and Terrorism Prevention Act. Thank you very much. I look forward to your questions. Senator Akaka. Thank you very much, Dr. Sanders, for your statement. Mr. Bunn. TESTIMONY OF BRADLEY BUNN,\1\ PROGRAM EXECUTIVE OFFICER, NATIONAL SECURITY PERSONNEL SYSTEM, U.S. DEPARTMENT OF DEFENSE Mr. Bunn. Mr. Chairman and Senator Voinovich, thank you for the opportunity to speak with you today about the National Security Personnel System at the Department of Defense. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Bunn appears in the Appendix on page 82. --------------------------------------------------------------------------- Successful NSPS implementation remains a critical transformation priority for the Department, and while we are still relatively early in our implementation, it is clear that NSPS is taking root. As of today, we have over 180,000 employees operating in the system. I would like to give you an update today on our progress. We are just over 2 years into the implementation, and like any major transformation, we have had our share of successes and challenges. We believe, however, that NSPS is working. The active engagement and participation of our senior leaders, most notably Deputy Secretary of Defense, Gordon England, speaks volumes to the importance of our civilian workforce and the role NSPS plays in the transformation of our Department. The design of NSPS has been deliberate, well managed, and transparent, based on guiding principles that include putting mission first, respecting our employees, valuing talent, performance, and commitment to public service, and ensuring flexibility and accountability. It will take some time before the Department fully realizes all the benefits NSPS was designed to produce, but we are already seeing a powerful return on investment. An unprecedented training effort focused on performance management, greater and more frequent communication between employees and supervisors. They are talking about performance, results, and mission alignment. And better tools to compete for talent and reward exceptional performance. Overall, we are seeing positive movement in individual and organizational behaviors toward a performance culture. These returns are cause for optimism. In April 2006, we began implementing the human resources provisions of NSPS. Over that 2-year period, we have converted approximately 182,000 employees and will convert another 15,000 to 20,000 beginning this fall. These transitions were preceded by comprehensive and extensive training to senior leaders, managers, supervisors, and employees with a particular focus on performance management. From the beginning of the program, we have worked to ensure that our organizations have sufficient time and resources to accomplish the training, prepare their employees, and implement when they are ready. Several factors have contributed to our success to date, including the extensive consultations the Department and the Office of Personnel Management carried out with our stakeholders in the design process, the value and investment placed in monitoring implementation and making adjustments along the way, and perhaps the most important factor, the emphasis and resources we have dedicated to NSPS training, one of the most extensive civilian human capital training initiatives ever undertaken by the Department. As of June 2008, our employees have completed over a half-million NSPS-related courses. Late last year, we completed our second full performance cycle under NSPS, resulting in performance-based salary increases and bonuses for over 100,000 employees in January. This was the culmination of a rigorous and robust performance evaluation and pay pool process that assigns ratings based on objective criteria and allocates rewards based on those ratings. The pay pool process, which has a proven track record in our personnel demonstration projects, is designed to ensure that appraisals and pay decisions are accomplished in a consistent, fair, and deliberate manner. To ensure fairness in the system, we designed safeguards into the process. In addition to the thorough reviews of performance evaluations through the pay pool process, employees have the right to challenge their rating in a formal reconsideration process. Also, we have been very clear in our regulations, policies, and training that forced distribution of ratings is prohibited. One of the key ingredients to effective program management is program evaluation. The Department has an ongoing evaluation effort to ensure the system is delivering the results we expect. Although we have not formally reported findings from our internal assessments, I can share some of what we are hearing and seeing. NSPS is clearly a significant change for our workforce. It requires more time and energy than previous systems and many of our employees are not yet completely comfortable with the system. Performance plans and assessments need improvement, as many are struggling with translating organizational goals into individual measurable job objectives. Employees have also expressed concern over the pay pool process, how it works and whether it produces fair results, and many are having trouble accepting a more rigorous evaluation system. Despite those concerns, it is clear that NSPS employees have a better understanding of how their jobs relate to the mission and goals of the organization. They see a stronger link between pay and performance. And there is increased dialogue between employees and supervisors about performance. So far, the results we are seeing are similar to the experience of our personnel demonstration projects and other alternative personnel systems. We have said from the beginning that we expect it to take 3 to 5 years for employees to fully understand and embrace the system. However, we continuously monitor and assess NSPS and look for ways to address employee concerns by making adjustments to the system and improving our communications tools and training. Is NSPS working? We believe it is. It will take time, however, to assess how well NSPS is working through thoughtful and thorough analysis and assessment. We also know that transformation takes time and can't be achieved overnight. In the meantime, we continue to gather information, listen to our workforce, and do what is necessary to ensure the system is credible, effective, and fair. Thank you, Senator Voinovich and Mr. Chairman, for your ongoing support for our DOD civilian workforce and for providing this opportunity to share our experiences about NSPS. I look forward to your questions. Senator Akaka. Thank you very much, Mr. Bunn, for your statement. Mr. Mihm. TESTIMONY OF J. CHRISTOPHER MIHM,\1\ MANAGING DIRECTOR OF STRATEGIC ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Mr. Mihm. Chairman Akaka and Senator Voinovich, it is a great honor to appear before you again today and I appreciate the opportunity. My specific role today is to discuss the preliminary results of our review of selected agencies' SES policies and procedures for performance pay. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Mihm appears in the Appendix on page 94. --------------------------------------------------------------------------- As you know, successfully implementing the SES performance management pay authorities the Congress has provided is important for any number of reasons. First, leading organizations have recognized that effective performance management systems create a line of sight to help ensure that individual and organizational performance are aligned and thereby are effectively contributing to the meaningful results and outcomes that citizens value. Further, effective agency-wide pay-for-performance initiatives must begin, in our view, at the SES level and then cascade down throughout the organization. In short, the SES must lead by example on performance management and pay reforms. The data that Director Springer quoted from the survey clearly indicates that the SES appreciates that it needs to have the leadership role in this. Finally and especially important this year, effective performance management systems that link programs and daily operations to significant results can provide continuity during the upcoming Presidential transition by maintaining a consistent focus on results. Clearly, the new team will have a different set of goals and a different set of performance measures, but what the Administration with the current efforts of Congress and the agencies now are delivering is a ready-made vehicle the next Administration can use in order to implement its policy priorities. My prepared statement focuses on agencies' policies and procedures for SES performance management and pay in a number of important areas, and our forthcoming report will discuss OPM and OMB's oversight role and make recommendations to selected agencies, OPM, and OMB in that regard. My bottom line today is that the agencies are making positive steps in addressing three important aspects of their performance pay systems. First, all of the agencies that we reviewed have policies in place that require Senior Executive performance expectations to be aligned with organizational results and for organizational performance to be factored into SES appraisal systems. However, on the other hand, OPM has found that while many agencies are doing a good job of this alignment, some performance plans fall short of identifying the specific measures used to determine whether or not the results are achieved. In other words, there is alignment at the front end. We need better data at the back end to see whether or not the success is actually taking place. Second, all of the selected agencies had multiple rating levels in place for assessing SES performance, and as one would expect, in general, those SESes with the highest ratings received the largest bonuses. Several of the agencies, such as the Nuclear Regulatory Commission, Department of State, Department of Energy, have designed their appraisal systems to help allow for differentiations when assessing and rewarding executive pay by establishing tier structures or prescribed performance payout ranges based on the resulting performance rating. Tier structures identify up front that certain SES positions have greater complexity, greater responsibility for managing risk, greater responsibility for achieving outcomes, and therefore should have greater opportunities for higher bonus and pay awards. Third, all of the selected agencies have built safeguards into their SES performance management systems, such as pre- decisional checks--you have heard a number of those today, of performance appraisal recommendations through higher-level reviews, as well as publishing information on aggregate results to help enhance the credibility, fairness, and transparency of their systems. However, on the other hand, this is one area where much more work needs to be done. Sixty-five percent of the respondents to the OPM survey that Director Springer was mentioning--these are of SES--said that they were not given summary information of their agency's performance ratings, bonuses, and pay adjustments. This information is important in order to let someone know where they stand in the organization so that they can identify and take meaningful action in order to improve performance. It is both a transparency and fairness aspect as well as important to improving individual and organizational performance. In summary, through the combined efforts of Congress, members of the SES, OPM, OMB, and the agencies, much progress on SES performance management has been made over the last several years. The key now, in our view, is to maintain and build on that progress and for the next Administration to use the SES performance management system to achieve additional results. Mr. Chairman and Senator Voinovich, this concludes my statement and I would obviously be happy to answer any questions you may have. Senator Akaka. Thank you very much, Mr. Mihm, for your statement. Now I would like to ask Senator Voinovich for his statement. OPENING STATEMENT OF SENATOR VOINOVICH Senator Voinovich. Thank you very much, Mr. Chairman. I apologize for being late. We had the new President and the Prime Minister of Kosovo here and I have been working on those issues for a long time and I thought it was important that I at least congratulate them and have a chance to visit with them, so I hope you understand. I would like to begin by thanking my good friend and partner on human capital issues, Senator Akaka, for holding this hearing. This is one of so many hearings that we have had over the last number of years on human capital. We want to make sure that the Federal Government has the right people at the right place at the right time to get the job done, and it is an issue that I have been involved with during my entire time on this Subcommittee because of my strong belief in the need for the government to invest first and foremost in its workforce. The Federal Government has begun an important cultural transformation in how it manages its most important asset, its people. As we hear the testimony today, I would remind our other colleagues that such transformation does take time. Understanding and accepting the systems being implemented at several agencies require a change in thinking and an emphasis on continuous improvement, and we have again heard that from the witnesses here. In commenting on management, Harold Geneen, former Chairman of International Telephone and Telegraph said, ``It is an immutable law in business that words are words, explanations are explanations, promises are promises, but only performance is reality.'' Our next generation workforce no longer seeks to work for an organization with the idea that they will stay there their entire professional career. People are looking to work hard and be recognized and rewarded, and that is why I have introduced the Federal Workforce Performance Appraisal and Management Improvement Act, which would require that Federal employees receive a written performance appraisal annually. Current law only requires periodic appraisals for job performance. The legislation would also require that an individual's performance appraisal be aligned with the agency's strategic goals and be developed with the employee. The performance appraisal system would make meaningful distinctions among employee performance and require agencies to use this information in making personnel decisions. I know there are a couple provisions of the bill that cause some concern because of the fact that it would prevent an employee from receiving an annual pay adjustment if that employee has not earned a ``successful'' performance appraisal. Mr. Chairman, I would argue that we owe the American taxpayer something to better ensure that they are getting value for their hard-earned dollar. I would remind those who have concerns that before an agency would even reach the point where an underperforming employee would not receive a pay increase, the agency would be required work with the Office of Personnel Management to develop and refine its performance appraisal system. In other words, if they don't have a good appraisal system in place, and again, and we have heard this from witnesses, pay for performance doesn't work. Employees would have then 1 year under the performance appraisal system to understand how it would be used to make pay decisions. These decisions would not be arbitrary or capricious. Managers would be required to receive appropriate training to judge the performance of their subordinates, make expectations clear to employees, and give constructive feedback. People want to know whether they are doing good or whether they are doing bad. The last thing they would like is to be ignored. This would support the Chairman's bill to improve the training provided to the Federal workforce. The only way the Federal Government will succeed in accomplishing its many missions is to have motivated employees working towards the strategic goals of their respective agencies. Challenges facing our Nation, from gas prices and the growing budget deficit to our crumbling infrastructure, are too significant to rely on an antiquated pay system which rewards tenure, and I think that is more important today than ever before. Everywhere I go today, whether it is in government or the private sector, we have a human capital crisis. Everybody is going to be out there trying to find the best and the brightest people to come to work for them, and I think that pay-for- performance, if properly implemented and explained and so on, is a real asset to our ability to attract the kind of people that we want to work for the Federal Government. It is going to be a challenge that we are going to have to continue to work on, but one I think that is very worthwhile. Thank you, Mr. Chairman. Senator Akaka. Thank you very much, Senator Voinovich. And now we will have the questions. Director Springer, according to OPM's 2007 report on pay- for-performance, the 2007 DHS employee survey, the recent SES employee survey, and other reports, there are mixed results on the success of pay-for-performance systems. Employees are not necessarily satisfied with their pay. They do not completely understand the pay system and many do not see meaningful distinctions in their performance evaluations. Earlier this year, the FDIC suspended its pay-for-performance system based in part on declining employee support. Your message at this hearing is that pay-for-performance systems are a success in Federal agencies based on numerous evaluations that you have had. Our reading is not along those lines. If employee surveys point to problems within these pay systems, what other evaluations are you basing the success of the pay-for-performance systems on? Ms. Springer. Mr. Chairman, it is important to draw the distinction between the execution of specific programs and the notion of performance-based pay. What we find in the surveys, like the SES survey, is that most of our respondents do believe that performance should be a factor in determining pay. In the areas where the implementation has not been at the level that we would expect, that doesn't negate the premise that people do believe that their performance should be recognized. It is more a matter of execution and how that has proceeded. It also, in some cases, is a function of training and just the basic infrastructure being in place. I believe both you and Senator Voinovich, as well as the panelists, have acknowledged that is foundational and critical to the success. What I would say is that in the systems where the underlying infrastructure is in place, that you find a better result and better acceptance, and that is why we are encouraging this more measured demonstration approach that only proceeds when the agency has the infrastructure in place. But it doesn't negate the fundamental belief that most people believe that their performance rightfully should be a factor in determining pay. Senator Akaka. Mr. Spires, Ms. Rossides, Mr. Sanders, and Mr. Bunn, how are your agencies using the employee surveys and feedback to address the issues with pay-for-performance systems? Mr. Spires. Mr. Spires. Yes, Mr. Chairman. We conduct an employee survey every year and some of those questions go to the heart of how we evaluate and reward our employees. On the not-so- positive side of this, our employees and our managers who are under pay-for-performance system tell us that we are still not yet measuring performance as well as we should. To distinguish those that are outstanding versus those that are just satisfactory or even below. Likewise, we are also told by our employees and managers that we are not yet dealing with poor performers as well as we need to. But again, we think that a pay-for-performance system that we have implemented and have rolled out to our managers actually addresses some of these concerns. In fact, we are seeing increases in our employee satisfaction scores overall and we are seeing increases in these particular questions that have to do with how we both evaluate and we reward our managers. Senator Akaka. Ms. Rossides. Ms. Rossides. Yes, Mr. Chairman. We take a look at both TSA's survey results and the DHS survey results and look at all of the questions and the issues directly impacting the workforce. But the survey results give us the opportunity to focus on things like the importance of communicating directly with the employees on our pay-for-performance system and we have put a number of things in place this year to make that system transparent to the workforce. Every TSO today can actually access their performance record online. We have direct communications with the TSOs on a quarterly basis. So the survey results really targets the leadership's attention on what our employees are asking for, what kind of information, and clarity around those survey results. We are also corporately, all of the operating components are taking the DHS survey results and looking at what issues are common to all of the DHS workforce in terms of our law enforcement and security occupations. So those surveys are very valuable to us to help us guide the areas we need to focus on to improve the system. Senator Akaka. Dr. Sanders. Mr. Sanders. Mr. Chairman, we start with our surveys. We do an annual survey across all of the agencies in the Intelligence Community. And as I mentioned, those survey results suggest that our employees want this kind of system. Let me tell you a statistic that may surprise you. About 50 percent of Intelligence Community employees have 5 years or less of service. And to be quite blunt, they are not going to have the patience to stay with us for a system that is based on tenure and time in grade. That is what they tell us in the focus groups. We have reached thousands of employees in focus groups, 800 in the Office of the Director of National Intelligence alone, which is not much bigger than that, and that demographic and their views suggest that we need to develop and deploy this kind of system if we really want to win that war for talent that Senator Voinovich talked about. Senator Akaka. Mr. Bunn. Mr. Bunn. Mr. Chairman, we have been using surveys for many years to assess the satisfaction of our civilian workforce. About 3 years ago, we started targeting the NSPS population both pre-implementation and post-implementation so that we could zero in on what the folks under NSPS are thinking about performance management, about pay and other workforce issues. We have been able to begin trending how our NSPS employees, what their attitudes are in comparison to the rest of the workforce. It is a cornerstone of our program evaluation effort. That is how we are getting the valid employee feedback on what is going on with NSPS, in addition to visits to installations, focus groups with employees, and other normal outreach mechanisms. But we spend a lot of time focusing our questions specifically for our NSPS workforce and they have been extremely helpful so far as we have done our internal assessments, and we will continue to do that throughout the program. Thank you. Senator Akaka. Mr. Bunn, as you know, one of the main concerns raised by Federal employee unions over the recently proposed NSPS regulations is the definition of the term ``rate of pay.'' The employee unions argue that the definition used by DOD and OPM would limit bargaining over procedures and work arrangements for determining overtime work, including rotation, seniority, and other methods for selecting employees fairly. Is it your intention to deny unions the ability to bargain over these type of issues? Mr. Bunn. That is not our intention. We have heard the concerns through our formal public comment period with our recent revised regulations that were published back in May and through the national consultation process with the unions, their concerns over how we have defined the term ``rate of pay.'' Rate of pay is a term that is in the Defense Authorization Act from 2008 and it is specifically referenced as something that is not negotiable under NSPS. However, the term is not defined in the law and it is used in many different ways in current law, rule, and regulation. So what we attempted to do in our proposed regulation is define it in the context of NSPS. We fully recognize that Chapter 71 of Title 5 applies with respect to collective bargaining in NSPS, but that term is one of the limitations in terms of collective bargaining, so we have attempted to deal with that in the regulation. We are taking those concerns to heart. We are looking at that language that we have used. But we have no intention of denying the unions what they may bargain under the law under Chapter 71. Senator Akaka. OK. Can you elaborate on what exactly DOD is attempting to limit bargaining over? Mr. Bunn. I think what the issue is, Mr. Chairman, is how we use the term, what we call applicability and conditions with respect to rate of pay. We understand that Congress's intent was to provide for collective bargaining for our bargaining unit employees who would be brought under NSPS with a limitation on bargaining over pay, which most Federal employees don't have a right to bargain over now. But there was a provision in the law that allowed for bargaining over procedures and arrangements with respect to that, which is a term of art in the labor relations arena. What we have attempted to do is build and construct where we have some uniformity in how that bargaining would be done and define what is really meant by rate of pay, so, for example, decisions around modifying our pay band structure or adjusting the pay bands on an annual basis or the funding that goes into performance-based pay pools. There are certain things that we think are appropriate for bargaining under Chapter 71 rules and under the now Chapter 99 rules, but there are things that would remain off the table. So what we have attempted to do is define those things. So for purposes of things like overtime, determining applicability on who would receive overtime, things that are currently in collective bargaining agreements, it is not our intent to go in and overturn those kinds of things that are currently bargained over in DOD. Senator Akaka. Well, thank you. Mr. Bunn. Thank you, sir. Senator Akaka. Senator Voinovich. Senator Voinovich. Thank you, Mr. Chairman. Before I ask my questions, I would like to thank Ms. Springer and Mr. Spires for your service in the Federal Government. I understand that both of you are going to be leaving. Ms. Springer and I got to know each other quite well over the years. She served over at the Office of Management and Budget and they convinced her to come back into government and I think you have done a really outstanding job over there. I appreciate your service and wish you good luck in our next endeavor. Mr. Spires, I am not that familiar with your record, but thank you very much. I was impressed with what you had to say about what you are doing at the IRS. Director Springer, OPM has an important operational responsibility to work with Federal departments and agencies to ensure reforms of performance management systems provide employees a fair and transparent system with meaningful opportunities to enhance communication, improve individual performance, and I would like to know how OPM has met this responsibility. Perhaps you could also make reference to a meeting in July that you had with the Chief Human Capital Officers where they discussed lessons learned from your recent survey of the Senior Executive Service. I would like to know what you have tried to do to make sure that these systems that we are putting in are robust and also maybe some of the things that you have learned from that meeting you had on July 14, 2008. Ms. Springer. Thank you, Senator. Let me also say that it has been a pleasure to work with you. As I said to Senator Akaka, there is really no better champion in the Senate than both of you for the Federal workforce, so thank you. With respect to our oversight and our work with the agencies, one of the key things that we use is our Performance Appraisal Accountability Tool (PAAT) and there is a version of that specifically for the SES. The Chief Human Capital Officers (CHCO) Council, has worked with us in developing that, and that is one of the principal tools we use with each agency. We have OPM aligned with our different agencies so that there are dedicated people that work closely with the CHCOs and the performance managers at each agency. So, not only do we work with them to assess their infrastructure and each of the things that the panelists have mentioned here today in their practice of performance development and monitoring, goal setting, all of the things, we assess them and give them a score based on that tool. The community represented by the CHCO Council, half career, deputies that are career officials, have helped us develop that tool and they use it, as well, for their own diagnostic through the year. We have had, as you have said, several sessions with the Council and the Subcommittee on Performance to have those agencies that score well on that tool share their best practices. In our hearing a year ago, you encouraged us to actually be more proactive in that area and use that council, and we have been doing that. Those performance-based pay practices are being adopted. They are being documented. They are being shared and our agencies tell us that that is helpful. We are also having a CHCO Council Training Academy. That is the formal educational arm of the Council, again, dedicated in August to the SES survey and the agencies' practices that we learned there that got high marks. So the July meeting, the upcoming August meeting, all of these as well as the collaborative effort in developing our assessment tools help OPM to do that work. Senator Voinovich. We have talked in the past about the SES and how it in certain areas has been very well received, in others, it has not. Can you give me an example of where you have had an agency where from the survey their folks weren't real happy and how your intervention has made any difference in terms of the next survey? Ms. Springer. If I may get back to you on that, I can give you some specific examples. However, I will tell you that in addition to getting agencies to reach a level of performance, there also is the effort of keeping the ones who have achieved it performing at that high level, as well. We are not focused just on the ones that need remediation, but also on maintaining the ones that have been doing a good job. But we will get you that information, Senator. Senator Voinovich. Well, I think that if we are going to make any progress in this area, even this proposed legislation I am thinking about, it has got to start with the Senior Executive Service. And if you have people in there who are not happy with the system or don't feel that it has been implemented the way it is supposed to, the chances of making any progress with the rest of the agency, I think is remote. So I think that work is really very important, and I would really like to get your best guesstimate about which agencies are your super performers, and then your candid opinion about where we need to do some improvement. Ms. Springer. We will get that. Senator Voinovich. Dr. Sanders, you have described a very comprehensive program that you have put together. I have two questions for you. One is, I just didn't realize all these agencies, Senator Akaka---- Mr. Sanders. That is what keeps me awake at night. Senator Voinovich. It is unbelievable. What guarantee do we have that when the next Administration comes in, that all this work that you have done is going to prove fruitful? Mr. Sanders. I don't know if there is a guarantee. As I believe you have heard Director McConnell testify, the personnel authorities of the Director of National Intelligence are somewhat ambiguous and the directives I have talked about, and maybe there is some good news here, the directives that I have talked about are literally agreements, treaties amongst the various departments and agencies in the IC. So where that legal authority is vague, the fact is you have cabinet Secretaries and agency heads who have said that ambiguity notwithstanding, we are going to agree as a matter of policy to move forward as a community, cutting across all of those departmental and agency lines. So while those regulations may not be ``imposed,'' by the DNI, the fact that they were collaboratively derived may, frankly, make them more resilient in this transition. At least that is what I hope. Senator Voinovich. Have you identified folks within the agencies where you are going to have a change in leadership that are committed to moving forward with this? Mr. Sanders. As I indicated, this effort has been largely led by the agency deputy directors, which are the senior career officials across the board, and that was done deliberately to ensure that we do have that continuity. They will be there through the transition and be prepared to brief the new agency heads. In that regard, many of our agency heads are uniformed military, so they do transition independently of Presidential elections. We have already been able to sustain some of that continuity with the change in leadership in individual agencies. Senator Voinovich. And you sense an understanding about how important this is for their ability to retain the folks they have and to attract other ones and they get that? Mr. Sanders. Yes, sir, I believe they do. We literally need a workforce that knows something about everything. We are at the cutting edge of this competition, this war for talent with the private sector, with other Federal agencies, and I think they understand that in order to keep that keen edge, in order for us to be competitive in that regard, we need the kinds of flexibilities that this system will give us. They also need that level playing field so that no one IC agency enjoys a competitive advantage over the others. And since I have the floor, let me put one other thing on your radar screen for this Subcommittee. One of the things that I worry about is executive pay compression. Senator Voinovich. I was just going to ask you about it. Mr. Sanders. This Subcommittee had a hand in fixing that problem 4 years ago. The passage of time has eroded those great benefits. And one of the things that I worry about is that your very best-performing executives, who will by definition be the first to reach that cap, are suddenly now against the ceiling. There are literally no financial rewards, at least those that go to base pay and annuity. This is something that I would ask this Subcommittee, the full Committee, this Administration and the next to take on before it becomes a crisis. Senator Voinovich. We certainly will take that under advisement. When you are hiring new people, does the fact that you are implementing this performance system have any impact at all on their decisionmaking? In other words, we assume that it does, and I have mentioned that. But of anybody at the table, have you found that the fact that you do have this system in place has made your agency more attractive in terms of hiring folks? Mr. Sanders. Anecdotally, we get lots of stories from our recruiters, and as you may know, we get 100,000 to 150,000 resumes a year, the Nation's very best and brightest, and we have had to equip our recruiters with an information sheet on our pay-for-performance effort because that is a constant question amongst the best and brightest. What are the rules of engagement when it comes to compensation? Will I be paid based on results or will I be paid based on tenure? And, of course, these are in most cases pretty young, pretty aggressive, very talented people, scary smart, and they, of course, want to be paid on the basis of results. Senator Voinovich. Well, I know this, not anecdotally, but probably during the last maybe 6 or 7 years I have had at least a half-dozen people tell me they left the Federal service because they just felt that everyone was treated the same way and there wasn't any recognition for people who were performing at a higher level and cited that they were going someplace else where maybe their hard work and talent would be more appreciated than working for the Federal Government. Go ahead. Senator Akaka. Thank you very much, Senator Voinovich. Ms. Rossides, according to a TSA briefing for Subcommittee staff, TSA uses quotas in its pay-for-performance system. I understand that unlike other Federal agencies, TSA is not prohibited from using quotas. However, I am concerned that the use of quotas undermines the pay-for-performance system. No matter how well an employee performs, he or she may not get a significant pay increase. Given that the use of quotas is prohibited in other agencies, why is TSA using them? Ms. Rossides. Mr. Chairman, we do not use quotas at all in our pay-for-performance system. In fact, we have what we have described to our employees as a rate and rank system. We have a sum of money that is part of our appropriation and the employees are scored at the end of the performance cycle under our pay-for-performance system based upon their performance during the year and they receive basically a rating on a scale of 100 points. And then depending upon the distribution of the performance of those employees, we give out our bonuses and pay awards based on that. But we do not have quotas under our system. Senator Akaka. At our hearing on the SES in 2006, Director Springer, you were crystal clear on the fact that quotas are prohibited for the SES pay-for-performance system. However, despite OPM and other agencies issuing regulations barring the use of quotas or a forced distribution of performance ratings, I continue to hear from employees, not just in the SES, that agencies are, in fact, using quotas. What guidance is OPM providing agencies on making meaningful distinctions in performance? Ms. Springer. In our annual guidance, which came out not long after that hearing, we added a dedicated section to agencies to reiterate to them that quotas were prohibited. That we would be including in our audit work reviews to make sure, to see if we spotted any instances of it. We also in cases where it came to our attention that an employee of an agency felt that they were subject to a quota, we wrote letters back to that agency to deal with it. We have through the CHCO Council and very specific written communications of guidance to agencies reiterated very strongly that this is prohibited. It will be a constant effort for us of vigilance to make sure that, (A) we respond to what is reported to us, and (B) to generally, as a matter of course, be on the lookout. Senator Akaka. Thank you. Dr. Sanders, you state that IC employees will be evaluated on behaviors such as personal leadership, integrity, collaboration, and critical thinking. However, there is a dark side to promoting uniformity in the intelligence community in that it may promote a uniformity of analysis. I fear that convention and safe thinking will be rewarded and risk taking will be discouraged as more and more managers are trained to do performance evaluations with a common perspective. Analysis may miss what is important in order to conform with group thinking. Differences of interpretation are important, and many have argued, as an example, that if the President has listened to the State Department's view of Iraq's weapons of mass destruction analysis, his decision to go to war would have been different. What have you built into your performance evaluation process to ensure that not all analysts think alike and are not pressured into conforming their independent analysis to political pressure? Mr. Sanders. In fact, Senator, the very definitions of the words you described and the behaviors that we are trying to elicit amongst IC employees guard against that. For example, the definition of the performance element, Personal Leadership and Integrity includes the courage to speak truth to power. So employees have a set of behavioral definitions that deal with that specifically. Managers and executives, in their performance plans, under the behavioral part of them, are specifically charged with promoting and encouraging that courage to speak truth to power. The same thing with collaboration. We have taken great care to define collaboration. It is not consensus. It is not group think. It is sharing information, but it is also conforming to analytic craft trade standards, which require alternative analysis. We want the sharp edges of a debate on any given intelligence topic to be exposed in the IC. So these definitions are deliberately intended and deliberately defined to do that, to guard against the very dysfunctions that you have described. Senator Akaka. Thank you. Ms. Springer, under the IRS pay- for-performance system, it is possible for a GS employee to get a higher rate of pay than their manager. According to a report from the Treasury Inspector General for Tax Administration on the IRS pay-for-performance system, this is a disincentive for GS employees to become managers. Similarly, under the SES pay- for-performance system, GS-14s and 15s are guaranteed pay raises that SES employees are not. Dr. Sanders points out the same problem in his testimony, that high-performing GS-15s are less likely to move into the SES if pay continues to erode. Do you see a disincentive for GS-14s and 15s to enter into the SES because pay is not guaranteed under the SES pay-for- performance system? And if so, what do you plan to do about that? Ms. Springer. I think that there are several proposals that have been offered to deal with the disincentive from a pay standpoint of moving from the upper General Schedule levels into the SES. One of those that has been proposed, for example, is an automatic pay increase when you move up to the SES. That is something that we would be interested in exploring and working with the Subcommittee on. And, the SEA, I might add. The whole challenge, and I don't think this is so much a performance-based pay issue as it is generally a pay issue, and the problem that you have moving from the one system to the other is a real issue and it is becoming increasingly so. I think that, clearly, we need to do something. If we don't, and if in the next Administration this isn't taken on, I think we will see more and more people disinclined to move into the SES. And, that is certainly not a desirable outcome. But one that I would suggest off the bat that OPM and others working with your Subcommittee should do is to look at that proposal of an automatic increase. Senator Akaka. Thank you very much, Director Springer. Mr. Mihm, as the various employee surveys show, there are still many concerns that employees have with the pay-for- performance systems. In 6 months, the new Administration will take office. What are the top three employee concerns that you think should be addressed before the transition occurs? Mr. Mihm. Well, before the transition occurs, I think it will be very difficult because I think the top employee concerns, at least that we have seen in looking across the various agency surveys, and frankly GAO's, as well--we are not perfect by any means in this, our own employee concerns show these types of things--are long-term issues that need to be addressed. The first, I would say, Mr. Chairman, is the clarity, honesty, and integrity of the entire performance management system. It is something there has been a lot of discussion about here this afternoon, something that you have certainly pointed out, of making sure that we have a good, validated, robust performance management system in place that has the confidence of managers and employees that we are accurately measuring and fairly measuring what we purport to measure. So that would be the first issue. Second is, to make sure that we have adequate training in place, both for supervisors and managers. One of the things that you mentioned in your opening statement, sir, was about the costs associated with doing pay-for-performance the right way. In fact, kind of the flip side to that is that if you want to try and kill it, the way to kill it is try and do it on the cheap because the experience from the demonstration projects, and our experience in GAO is it takes an investment. It is an investment that is worth it, but it takes an investment if you are going to do pay-for-performance. It takes an investment initially in technology and making sure you get a robust performance management system, but it takes an investment in training, and that is an ongoing investment that you have to make. And it is not just on how to do a performance appraisal. It is training on how to manage, how to lead, how to supervise, and there are huge gaps across the Federal complex in those types of basic leadership and supervisory skills. And then the third key area I would say is making sure that we have the alignment in place, and this is making sure that the organizational goals cascade all the way down into individual performance expectations because that is going to be a key part of the transition. Because of the work of the Congress, the work of the agencies here and other agencies, they really have put in place a system that the next Administration, the next Congress can use as they are implementing their program priorities to make sure that they cascade down throughout the organization. It is by no means perfect, as you have been hearing. But it has taken a lot of work to get to where we are now. That is a tool that the next Administration, the next Congress can use in order to deliver effective results for the American people. So I would say those are three key things we should focus on. Senator Akaka. Thank you very much, Mr. Mihm. Senator Voinovich. Senator Voinovich. One of the things that I would be interested in knowing more about is training. With NSPS, for example, did the Department use a train-the-trainer model, or am I mistaken? Did you bring in other people to do it? I thought you trained the trainer and then you worked it out within the organization. Did that interfere with the job of those individuals that were taken off whatever they were doing to become involved in the training, and second of all, in terms of your budgets as to the allocation of resources for training? I go back to my early days here when I did a survey when I first came to the Congress and I sent a letter out to 12 agencies and I asked them, how much money do you spend on training, and I think all of them said that they didn't know except one, and they said, we know but we won't tell you. [Laughter.] Senator Voinovich. So I would like you to comment on both of those things, or anybody who wants to chip in on this question. We will start with you, Mr. Bunn. Mr. Bunn. Senator, thank you. We used kind of a hybrid approach with respect to how we trained our workforce on NSPS. We certainly did the core development of the training, the materials, and delivery through a train-the-trainer approach, and that was for a couple of reasons. One, we wanted to ensure that we maintained control over the content and that the training materials themselves were of high quality and that we had the best control possible over those. We also wanted to ensure that we had a cadre of performance management experts that we could tap into as we moved through the process and institutionalized NSPS and pay-for-performance throughout the Department. So we made a conscious choice to, in some cases, take people off of what they were doing and get them those competencies and skills in performance management, and it wasn't just their platform training skills but it was actually their performance management skills that we are now able to tap into. We did use some external training vehicles, contractors. We brought in some retirees from various sources to help with training, but that was mostly to offset the load. But we certainly used our own internal resources to do that. Senator Voinovich. What guarantee did you have that the last spiral received as much training as the first spiral, because Senator Akaka and I had a chance to visit with that first group of individuals and then in Ohio, I had a chance to visit with some of those folks. But one of the questions I had was that you started out with this great program and people understood it. What did you put in place to guarantee that that training was consistent with what you had in the beginning? Mr. Bunn. Well, we certainly applied the resources to it and maintained the momentum as demonstrated by the resources we put to the whole program. We have spent millions of dollars implementing NSPS. It is no secret. We have reported on that before. And the majority of the resources we have spent have been on training. What is interesting, Senator, there was a lot of attention paid to the first adopters, what we call our spiral 1.1s, those first organizations that came in, and we certainly saw the return on that investment. There was leadership engagement from all corners of the Department, including the organizations themselves. I would probably point to the engagement of Deputy Secretary England and his engagement and leadership in maintaining cognizance over NSPS for the past 3 to 4 years as probably the biggest factor in ensuring that we had the resources as we went through implementation. And what we are seeing so far in our employee surveys is that the folks who came in in the second and third tranches of NSPS, actually, the training was a little bit better than the very first set, mostly--and it makes sense--we learned lessons. We adjusted our training materials. We adjusted the content based on feedback we got from those first organizations and actually delivered a better product. We are also working on ensuring that we have institutionalized that training really from here on out so that we maintain and sustain the training as part of our normal human capital training for any organization that comes under NSPS. Senator Voinovich. But the thing that really helped out was that Mr. England made it a very high priority and stayed on top of it. Mr. Bunn. Absolutely, and to this day, he has maintained his awareness and he is very much in charge of NSPS. Mr. Spires. I might just add real quickly that once our system had been set up, one of the things that we did was brought in an independent contractor with specialty in this area. This enabled focus groups and other types of evaluations to go on directly from the employees so that we could get candid feedback as to what was working well. But more importantly, what was not working well, and have adjusted based on feedback. Senator Voinovich. That was your snapshot to look at how things were going? Mr. Spires. Yes, sir. Senator Voinovich. Ms. Rossides, I travel around the country and I have a special relationship with your people because I have a pacemaker, so I get a chance to talk to a lot of them. Ms. Rossides. Yes. [Laughter.] Senator Voinovich. And I do my own survey as I go along. And I must say that in the last couple of years, things have gotten better. The issue seems to be two things, that some of the employees are not aware of the flexibilities that are available to them, particularly if they have a gripe that they want to have taken care of, and the others are complaining, some of them, that the system of evaluation is too objective and that there isn't enough subjectivity in the evaluation. So I don't know whether you would comment on both those things. And last but not least, I know that there is going to be an effort made to eliminate the flexibilities that we gave your agency when it came into being because we had to stand up, some 50,000 people overnight. What would be your opinion in the event that these flexibilities were yanked and we went away from this very aggressive experiment? Fifty-five-thousand people in performance evaluations, it is a big deal. Ms. Rossides. Yes, sir, it is, and if I could start with that because I think the flexibilities that ATSA provided to TSA are enormously critical to our success in building this agency and continuously improving its performance. And specifically, those flexibilities have allowed us to provide to our front-line officers differences in pay for hard-to-fill airports, for example. It has allowed us to pay our part-time TSOs the full-time equivalency under health benefits. Those flexibilities have allowed us to build this pay-for-performance system and to continue to improve it. Our PASS system is only in its third year, and as a lot of my colleagues here have said, it takes several years to get it right. And our commitment is to make sure that we continuously improve upon this and hear from our officers, just like you do. The system is predominately objective. Roughly 70 percent of the assessment of the officers is an objective assessment. It is based on their performance on critical aspects of the job, including their ability to recognize explosive devices on the X-ray. It is based specifically on their training that they complete. And honestly, we think in the long term, this percentage of objectivity will help to build the credibility of the system for the officers and for the managers. Last, I would say that this entire process requires the commitment of the top leadership, and your question to Dr. Sanders about the importance of continuing this kind of a system, we know we have several years of continuous improvement in this system. The leadership of TSA is predominately career people. Our succession plan for both the transition and the long-term maturity of TSA is to ensure that we have career people in the jobs, both in our human capital arena, but across the whole organization. And this is something that you can't start and stop in a year. This is something that takes years to perfect because when you are rolling out something like this to 55,000 people, it is an enormous transition. But we believe very strongly it is critical to our mission success. The kinds of feedback that you are getting, the kinds of experience that you see as a passenger who requires special attention, shall we say, because of your pacemaker, is exactly the kind of concrete skill that we are building in our officers, and that is exactly what we are trying to measure through this pay-for-performance system. Senator Voinovich. Thank you. Ms. Rossides. Thank you. Senator Akaka. Thank you, Senator Voinovich. I have a question to Mr. Bunn and Mr. Spires. DOD is required to make meaningful distinctions in performance and not institute a quota system or engage in forced distribution. It has come to my attention that some DOD managers have been told that most employees should receive a performance rating of three. This looks a lot like forced distribution. At the IRS, the Federal Mangers Association issued comments on regulations to revise the IRS broadbanding system and called for the elimination of performance rating caps or quotas. Can both of you tell me what measures you are taking to ensure that you are making meaningful distinctions in performance and not arbitrarily lowering scores? Mr. Bunn. Mr. Bunn. Mr. Chairman, I will start. We have heard that kind of feedback. I think the results, as demonstrated through this past performance cycle, say otherwise. We have a five- level system, as you mentioned. We had over 100,000 people rated. Roughly 57 percent of those folks were rated at level three, 36 percent were rated at level four, which is ``exceeds expectations,'' and about 5 percent were considered role model, and then less than 2 percent were unacceptable or what we call ``fair'' performers. So that distribution, I think, shows that we are making meaningful distinctions. We did set the bar high when we developed our performance evaluation system to ensure that it was rigorous and not that the expected outcome would be a three, a valued performer, but that it would take a lot to get above the valued performer level three. And I think, as I said before, when you look at the overall results, I think we have made meaningful distinctions, and those performance ratings also drove performance-based salary increases and bonuses. So the meaningful distinctions extended not only to the ratings, but also into the rewards and salary increase aspect of it. So I would argue that we have taken great pains to ensure that we don't have forced distribution. Certainly all of our training materials, all of our regulations and policies prohibit forced distribution. It could be that there is some miscommunication out there about what the expectation should be, and we have through our evaluation process gathered feedback on that--and will take the steps necessary to make sure that what we are training and what we are communicating are appropriate. Thank you. Senator Akaka. Mr. Spires. Mr. Spires. Mr. Chairman, first, I would like to say that there are many differences in my having come into the government from my 20 years in the private sector. But this challenge of how do you distinguish performance, but then also have the issue of limited amount of cash at play is a classic problem that not only faces those of us in the Federal Government, but in the private sector, as well. The issue of grade inflation comes into play here significantly, as well. Specifically at the IRS, we have some guidelines because we don't want to have grade inflation in the sense that you get a lot of people at the ``outstanding'' level unless they deserve to be at that level. We have a system that has some checks and balances. We issue guidance, and I call it guidance--it is not a quota system--but is guidance around what we would expect the distribution to look like. However, we have Performance Review Boards at both the organizational level and at the enterprise level across all of the IRS. Managers can come in and they can make a case for why individuals, for instance, in their organization should be rated at generally a higher level than the overall average and make that case. So it is that balance point. We are trying to strike for balance. We don't have a system where essentially you can rate everybody ``outstanding'' and that will hold. Again, from a grade inflation perspective, is that really the case? It is tough. I mean, this is a tough problem because you are asking managers to rate their employees and to be open and honest. But also to give them the right rating. It is that balance point that we are striking by providing some guidance. Also having a process through these Performance Review Boards to ensure that we are doing the right things if people truly are operating at an outstanding level. Senator Akaka. Thank you very much. Now, I have one final question not related to pay-for- performance and this is to Mr. Bunn. As you know, last year's NDAA contained a provision I authored to help reemployed annuitants at DOD who were forced to retire due to a reduction in force. I have employees in Hawaii who continue to ask me when DOD will issue regulations on that provision. Can you tell me the status of those regulations? Mr. Bunn. I can certainly take that question back. That is not within my portfolio, but I am aware of that issue. I know that the policy that you are talking about is in the final stages of review within the Department and it should be out soon, but I will certainly get back to you with a more specific estimate for when the policy will be out. Senator Akaka. I would appreciate that. Mr. Bunn. Yes, sir. Senator Akaka. Again, I want to say thank you to this panel for your responses. It will certainly help us in what we are trying to do. So thank you very much. [Pause.] I want to welcome our second panel, Carol Bonosaro, President, Senior Executives Association; John Gage, President of American Federation of Government Employees; Colleen Kelley, National President, National Treasury Employees Union; Jonathan Breul, Executive Director, IBM Center for the Business of Government; and Dr. Charles Fay, Professor, School of Management and Labor Relations, Rutgers University. As you know, our Subcommittee requires that all witnesses testify under oath, so I ask all of you to please rise and raise your right hand. Do you solemnly swear that the testimony you are about to give the Subcommittee is the truth, the whole truth, and nothing but the truth, so help you, God? Ms. Bonosaro. I do. Mr. Gage. I do. Ms. Kelley. I do. Mr. Breul. I do. Mr. Fay. I do. Senator Akaka. Thank you very much. Let the record show that the witnesses answered in the affirmative, and let me remind you that although your oral statement is limited to 5 minutes, your full statement will be included in the record. It is good to see you again, Ms. Bonosaro. Please proceed with your statement. TESTIMONY OF CAROL BONOSARO,\1\ PRESIDENT, SENIOR EXECUTIVES ASSOCIATION Ms. Bonosaro. Mr. Chairman, the Senior Executives Association appreciates the opportunity to share our experiences and views related to the current SES pay-for- performance system. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. Bonosaro appears in the Appendix on page 119. --------------------------------------------------------------------------- Since the creation of the SES in 1978, with its performance awards and Presidential Rank Awards, its members have been subject to a rigorous pay-for-performance system. That system was changed, as you know, in 2003 and has been in effect now for three cycles. A system that was meant to be transparent, flexible, and to reward performance has instead become a disincentive for many of the best employees who might otherwise desire to join the SES. Senior Executives take on more duties, work longer hours, and have fewer rights than GS-15 managers, yet they receive no locality pay, no compensatory time, and no guaranteed annual pay raises, unlike General Schedule employees. With a large number of Senior Executives eligible to retire, it is critical that issues with the current pay system be corrected so that we will retain a highly qualified pool of applicants to fill their positions. A comprehensive survey of the SES that SEA undertook in 2006, continued feedback from our members, and a survey recently completed by OPM shows several areas of concern with the system, including pay overlap between GS-15s and the SES, perceived quotas, and lack of transparency in both the rating and pay adjustment processes. One of the most disturbing findings of the SEA's survey was the opinion of 47 percent of the respondents that GS-14s and 15s are losing interest in applying to the SES. The OPM survey reported that only half of Senior Executives believe that the current system is helpful in recruiting qualified applicants to the SES. Anecdotal evidence we continue to receive indicates that the narrowing gap between SES pay and GS pay, coupled with the inconsistency of the SES system, result in a less attractive Senior Executive Service. Another issue highlighted by the SEA's survey was the perception that agency quotas, not actual performance, drive decisions about performance levels and salary adjustments. Downward pressure on rating levels exists within many agencies and we continue to receive reports from executives whose ratings were reduced without explanation. The certification process itself is a cumbersome one that some smaller agencies do not even attempt. It must be done every 1 or 2 years, and often the decision to certify does not come until well into the performance cycle. We are also concerned with the consistency by which the SES pay system is being implemented. The OPM survey found that communication of the results of the system to executives-- ratings, pay adjustments, performance awards--varied greatly from agency to agency. However, the greatest inconsistency has arisen from the total discretion that agencies have with regard to pay, and it is not unusual to find a disconnect between ratings and pay adjustments. As one Senior Executive told us, he received no pay increase for several years despite receiving ``fully successful'' ratings for his performance at the Department of Energy. Largely because of this, he voluntarily resigned his position in the SES to move back to the ``EJ'' excepted service, where he then received the same 4.49 percent pay increase given to GS employees this year in the Washington region. Our written testimony provides several other examples of this inconsistent and, on its face, arbitrary treatment. In the 3 years of experience under the new system, one of the most striking results is the low salary adjustments. In 2007, the most recent year for which data is available, or at least was available prior to today, those SES rated ``fully successful'' the year before received an annual average salary increase of only 2 percent, substantially below the increase, 2.64 percent, received by GS employees in the Washington, DC area. Given these issues with the pay system, it is no wonder that some who might otherwise aspire to the SES now perceive that the risks far outweigh the rewards. SEA's recommendations for legislative fixes to the pay system include ensuring at least a minimum annual increase for those rated ``fully successful'' or better and including performance awards and retention allowances in the high-three retirement calculation. I think this would no doubt go a long way towards dealing with the pay compression Director Sanders referred to and even that Dr. Springer admitted in her testimony, or in her response to your question, that pay compression is a problem. We also recommend a longer certification period, guaranteed funding of at least minimum SES salary adjustments, a minimum increase in pay for new Senior Executives, rules for pay tiers if an agency has them, feedback to Senior Executives, and greater transparency in the Administration of these systems. It is SEA's hope that with the adoption of our recommendations, the SES pay system will be one that adequately and fairly compensates those who perform the most challenging and important jobs in the career civil service and which will continue to attract quality candidates in the future. Thank you. Senator Akaka. Thank you very much, Ms. Bonosaro. Mr. Gage. TESTIMONY OF JOHN GAGE,\1\ PRESIDENT, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES Mr. Gage. Thank you, Mr. Chairman, for the opportunity to testify today. I will focus my remarks on the National Security Personnel System and TSA's past system. And thank you, too, Mr. Chairman, for your leadership in the 2008 National Defense Authorization Act, which in addition to excluding blue collar workers from NSPS, the law fully restored collective bargaining rights. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Gage appears in the Appendix on page 134. --------------------------------------------------------------------------- But AFGE remains profoundly concerned about the NSPS pay system. There are many issues, including new illegal restrictions on bargaining rights, the disconnection between pay and performance, despite what employees have been told, the requirement that performance ratings be pushed into a forced distribution or bell curve, the suppression of wages by permitting bonuses to be paid instead of base salary increases, and the virtual elimination of merit promotion. On May 22, DOD proposed revised NSPS regulations which cynically and purposely attempt to evade Congress's mandate for collective bargaining. DOD intends to implement these regulations in October, preventing the next Administration from reviewing the pay system and making adjustments before it goes into effect. This double-cross is unfortunate, but predictable. We strongly urge the Congress to block the implementation of the May 22 proposed regulations. Section 9902(e)(9) of the 2008 NDAA clearly says any rate of pay established or adjusted in accordance with the requirements of this section shall be non-negotiable but shall be subject to procedures and appropriate arrangements of Paragraphs 2 and 3 of Section 7106(b), the labor statute. And yet in its proposed regulations, DOD has broadened its definition of rate of pay to include the phrase, ``and the conditions defining applicability of each rate.'' The proposed regulation goes on to list conditions defining applicability of each rate for a dozen pages, clearly intending to eliminate any bargaining of the very procedures and arrangements Congress mandated that DOD negotiate. It is an act of cynicism and defiance on DOD's part to think it can define itself out of its statutory obligation. We urge the Senate to clarify in the Fiscal Year 2009 Defense Authorization Act that rate of pay does not include conditions defining applicability of each rate. The 2008 NDAA also ensures that an NSPS employee will be guaranteed 60 percent of the GS nationwide pay adjustment and 100 percent of the GS locality adjustment every year, provided that the employee is rated above ``unacceptable.'' As you know, DOD was prepared to give only 50 percent of the pay adjustment to employees in 2008 and none of its annual adjustment in 2009. The new law ensures that the full amount of the nationwide pay adjustment go for base pay increases. But to ensure the viability of the DOD pay system, DOD must be required to adjust its pay bands by the full amount of the nationwide pay adjustment, just as grades in the GS system are adjusted annually. In DOD's proposed regulations, the Secretary can adjust different pay bands by different amounts and the minimum and maximum rates of each pay band by different amounts. Mr. Chairman, we have heard from so many managers and employees about the implementation of this new pay system. They complain that it is unpredictable, unfair, and opaque. Supervisors have been ordered to withhold information from their employees about their ratings. The pay pools are required to force performance ratings into a bell curve, and the decision about how and by how much to compensate an employee for performance is completely arbitrary. When supervisors substitute bonuses for salary increases, workers lose not only in base salary, but also in their defined benefit pensions and in contributions to the Thrift Savings Plan. The result, Mr. Chairman, is the suppression of wages and benefits for civilian DOD employees. Under NSPS, promotions are rare. Employees might be given additional duties by their supervisor with a subjective pay raise or bonus in what NSPS calls reassignments, but there will be no clear pathway to that advancement, nor is there a requirement that the reassignment be open to competitive or even that other employees know about the opportunity. The Merit Promotion System will be all but dead. Bias and favoritism are inevitable. On Transportation Security Officers, Mr. Chairman, TSOs continue to be drastically underpaid, around $30,000 annually. TSOs are subject to the pay system known as PASS. While it is virtually impossible to obtain data or even basic information about how the system is supposed to work, to make matters worse, TSA continually changes the playing field. Employees believe that PASS is based on favoritism, not performance. Last December, TSA disclosed that TSOs would receive a smaller pay raise in 2008 than in 2007, even if they received the same or better performance rating as the previous year. On March 25 of this year, TSA Administrator Hawley sent a memo to all TSOs making changes to PASS, agreeing that it had become too complicated and that TSOs are being trained and tested on different standards and these standards do not reflect how TSOs do their job. Yet in May, TSA implemented the infamous image test, and in a stroke of astounding contradiction continued to hold flawed previous test results against TSOs. To make matters worse, TSOs still have limited access to image test training. The new training software is not available at all airports and in some cases does not work. Trainers are given wrong information about identifying threat objects during the test, which led directly to TSO test failure. TSOs with excellent work histories and commendations have been told they may lose their jobs. But instead of correcting the test and properly training TSOs, the agency has come up with another policy that continues to hold previous test failures against TSOs but allows management to retain and retrain whoever they want, making the new and improved image testing even more unfair than it was. TSA consistently ranks at the bottom of all surveys of employee morale in the Federal Government. This workforce is too important to be treated so callously. These workers need a rational pay system before the attrition rate climbs higher. AFGE urges the Subcommittee to end the PASS system and place TSOs under the General Schedule that applies to other Federal workers, including their colleagues throughout DHS. That concludes my statement, Mr. Chairman. Senator Akaka. Thank you very much, Mr. Gage. Ms. Kelley. TESTIMONY OF COLLEEN M. KELLEY,\1\ NATIONAL PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION Ms. Kelley. Thank you very much, Chairman Akaka, Ranking Member Voinovich, for the invitation to discuss pay-for- performance systems in the Federal Government. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. Kelley appears in the Appendix on page 149. --------------------------------------------------------------------------- The President's fiscal year 2009 budget submission reaffirmed his commitment to replace the current GS pay system with a more subjective pay banding system. OPM's December 2007 report touts the Administration's alternative so-called pay- for-performance systems now in many Federal agencies as successful experiments. NTEU does not agree with the notion that the GS system needs to be replaced, and I believe the evidence is now clear that current pay-for-performance systems have not been successful. To the contrary, alternative pay systems have produced a litany of failed experiments, widespread employee dissatisfaction, inequitable distribution of resources, abuse in ratings systems, and rampant employee confusion leading to low morale. I don't know of one pay-for-performance system that currently gets good reviews from employees who are working under it. The goals of recruiting and retaining high-quality employees and better accomplishing the agency mission are simply not being met by these pay systems. NTEU believes that for a pay system to be credible and effective, it must either be set in statute, like the GS system, so everyone understands the rules and consequences, or there must be collective bargaining so employees can have a role in the pay system and can have remedies for unfairness. The Transportation Security Administration has neither collective bargaining nor a statutory pay system. It is a prime example of the failure of a current pay-for-performance system. Under the TSA PASS system, employees are constantly tested, but if they fail, they are not told what they did wrong. The training is minimal. A majority of Transportation Security Officers do not even know what is expected of them to get a pay raise. Only 21 percent of TSA employees believe that promotions are based on merit. Fewer than one in four believe that their pay raise is determined by their performance. The PASS system has resulted in the highest attrition rate in the Federal Government, and now TSA has awarded a $1.2 billion contract to Lockheed Martin to perform its human resource activities, including pay. NTEU believes this taxpayer money could be better spent by putting TSOs under the existing GS pay system and increasing staffing and reducing airport congestion, rather than increasing contractor profits. TSOs must also be afforded collective bargaining rights like their coworkers throughout the Federal Government. At the IRS, where we heard earlier that managers are under a pay banding system, the Federal Managers Association has spoken out against the system's forced pay quotas and they said that pay was not necessarily dependent upon performance ratings. In addition, the Treasury Inspector General for Tax Administration found a number of deficiencies in the IRS managers' pay-for-performance system. A July 2007 TIGTA report states, ``The IRS risks reducing its ability to provide quality service to taxpayers because the IRS pay-for-performance system potentially hinders the IRS's ability to recruit, retain, and motivate highly skilled leaders.'' If these alternative pay systems are jeopardizing the achievement of an agency's core mission, in this case to provide quality service to taxpayers, how can we justify continuing or even expanding their use? Even at agencies where pay is negotiated through collective bargaining, NTEU has seen problems. In September 2007, NTEU won an important legal battle when an arbitrator ruled that the Security and Exchange Commission system was found to discriminate against African-American employees and employees that were 40 years of age and older. The SEC has since agreed to freeze its flawed merit pay system and is working with NTEU. Similar problems existed at the FDIC, where we collectively bargain over pay. Only 12 percent of employees surveyed found that the pay system rewarded performance there at the FDIC. To Chairman Bair's credit, that program was also suspended and NTEU is also working with that agency on a revision. The GS system, though much maligned, has rules, standards, and evaluations which must be written. Employees receive within-grade raises and career ladder promotions based on performance criteria. Locality adjustments make it market sensitive. Flexibilities, like awards, quality step increases, telework, student loan repayment, and others, are authorized and should be used more extensively to attract and keep talented employees in government. In conclusion, NTEU supports a moratorium on new pay-for- performance systems and a review of those that are in place to see whether they are successful in accomplishing their goals. Those that are failing should be canceled. NTEU also strongly believes that collective bargaining over pay must be provided to employees under alternative pay systems to provide employees with a check on abuse. Thank you again for the opportunity to testify and I would welcome any questions you have. Senator Akaka. Thank you very much, Ms. Kelley. Mr. Breul. TESTIMONY OF JONATHAN D. BREUL,\1\ EXECUTIVE DIRECTOR, IBM CENTER FOR THE BUSINESS OF GOVERNMENT, AND PARTNER, IBM'S GLOBAL BUSINESS SERVICES Mr. Breul. Thank you, Chairman Akaka and Senator Voinovich, for the opportunity to discuss performance pay systems in the Federal Government. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Breul appears in the Appendix on page 161. --------------------------------------------------------------------------- The question of how to compensate civil servants remains what I would call a thorny issue. Public sector positions no longer necessarily offer a job for life, and Federal departments and agencies are increasingly in competition with the private sector to recruit and retain top performers. One solution widely used in some parts of the private sector is to replace or complement the traditional civil service system of automatic salary increases based on length of service with financial reward for good performance, or performance-based pay. In order to gain a better understanding of the challenges and issues related to performance-related pay, the IBM Center has sponsored and published three recent research reports by public management experts. The first report, ``Designing and Implementing Performance-Oriented Pay Band Systems,'' is by Jim Thompson at the University of Chicago. According to Professor Thompson, pay banding is not a new concept to the public sector. The essential concept is that for purposes of salary determination, positions are placed within broad bands instead of narrow grades. And according to Mr. Thompson, the preponderance of data shows that these systems have achieved high levels of employee acceptance. However, the degrees of success seem to vary depending on how well those systems have been designed and implemented. Mr. Thompson's report goes on to describe nine different performance-oriented pay band systems that have been in operation in the government, in some cases for more than two decades. He makes the case that successful designs are those that, one, achieve a balance between efficiency, equity, and employee acceptance; two, acknowledge the soft as well as the hard design features; and three, fit the organizational context. A second IBM report is ``Managing for Better Performance: Enhancing Federal Performance Management Practices,'' by Howard Risher and Charles Fay, who is sitting to my left. The authors of this report recognize that performance management is recognized worldwide as a critical factor in helping individuals and organizations achieve their goals. When done correctly, performance management becomes a powerful and effective tool to drive individual and organizational performance. When done poorly, it can create an atmosphere of distrust between managers and employees, ultimately limiting performance and the organization's ability to achieve its full potential. Fay and Risher argue that the responsibility for effective management of employee performance rests squarely on the shoulders of executives and front-line managers. They emphasize the management of employee needs are a core responsibility of every manager. In this view, it is critical that managers understand and effectively practice the fundamentals of performance management, including planning, monitoring, developing, appraising, and rewarding employee performance. The third report is ``Pay for Performance: A Guide for Federal Managers,'' by Howard Risher. Risher insists that research over the years confirms that organizations benefit when they recognize and reward employee and group performance. He explains that for the new system to succeed, managers need to be comfortable with their new role in overseeing such systems. This makes it essential for them to play a role in planning and implementing the new systems. Risher argues that pay-for-performance, including the reward system, must be an integral part of an organization's overall strategy to create a performance culture. Further, he contends that Federal agencies will have to overcome barriers of cynicism and distrust among Federal employees, and there will be what he calls bumps and detours along the way, so agencies must expect to adjust their plans with experience. He concludes that, in the end, the new policy can be expected to contribute to improved agency performance. Importantly, however, Risher warns that the transition will not be easy. ``This may prove to be the most difficult change any organization has ever attempted,'' but in the end, he believes it will better serve the needs of the Federal Government than the current General Schedule salary system. In conclusion, the question of how to compensate public employees remains a thorny one. Performance pay is an appealing idea, but research indicates that implementation, as well as improving government performance, remains complex and deceptively difficult, both technically and politically. Thank you, Chairman Akaka and Senator Voinovich, for holding this important hearing and for remaining engaged on the important issue of improving management and performance of government. Senator Akaka. Thank you very much, Mr. Breul. Dr. Fay. TESTIMONY OF CHARLES H. FAY,\1\ PROFESSOR, SCHOOL OF MANAGEMENT AND LABOR RELATIONS, RUTGERS UNIVERSITY Mr. Fay. Chairman Akaka and Senator Voinovich, thank you for giving me the opportunity to testify on compensation and pay-for-performance again. Given my background, it should be obvious I have a bias favoring strong performance management systems and pay-for-performance in general. When well designed and well implemented, these systems can and do increase employee understanding of what is required of them and increase both their performance and organizational outcomes. Flawed programs can and do decrease productivity and employee job satisfaction. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Fay appears in the Appendix on page 165. --------------------------------------------------------------------------- I think it is appropriate for the government to institute pay-for-performance systems. It is clear that agencies have done their homework in studying the large literature on private sector performance management and pay-for-performance systems. That said, I see many of the same problems in the various systems implemented by government agencies that plague similar systems in the private sector. First of all, these programs seem too ambitious. They are trying to do too much, too fast, for too many. Second, the culture that makes ``meets standards'' performance a failure, and it is in most of these systems, needs to be changed. When ``meets standards'' is a failure, you are going to end up with an excellence entitlement mentality and no system will be able to differentiate high performers from standard performers. Third, managers need to be held accountable in terms of pay and their own performance for performance management and pay- for-performance. Many managers think they are far too busy to do pay-for-performance, to do performance management, and if managers don't have time to manage, it is questionable what they should be doing. The programs and particularly the DOD programs confuse market adjustments and performance bonuses. Employees expect to be kept whole against market, and it is clear from union and employee complaints that they know the difference between market adjustments and performance bonuses. Hence, all the arguments about comparison with GS, which is getting the FEPCA adjustments, as compared to what is happening in the pay-for- performance systems. The market adjustment issue is particularly important to government workers because they generally make less than equivalent private sector workers, especially from about GS-8 or GS-9 upwards. For a variety of reasons, government employees are much more heavily unionized than private sector employees. You can't simply import private sector programs into government and expect them to work well. Unions in general are opposed to performance management and pay-for-performance systems because employees and employee representatives lose partial control of terms and conditions, and you have heard that again today. I hear both that employee representatives have been active in the design and Administration of these systems and that they have been precluded from participating in that. In a unionized organization, they should be very heavily involved in designing and implementing the systems. Having bonus pools, as the Department of Defense system does, where ratings and bonuses are calibrated, is one of the better designed approaches in these systems. However, calculating the bonus pool solely as a function of the salaries of the members of the pool is inappropriate. It rests on the assumption that the aggregate performance of employees making up each pool is equal across pools and that the employees of each pool are equally strategic to the agency or the department. Neither of these assumptions is likely to be accurate. Calibration committees should not be negotiating ratings or awards. When bonuses appear to employees to be a function of the negotiating skill of their manager, or when there is a drive for some specific distribution of ratings, the whole system loses any value in motivating those employees. At the same time, there should be an effort to standardize reward share numbers across pools. A ``meets standards'' employee should receive the same number of shares regardless of the pool to which he or she is assigned. Similarly, the range of share measures that each performance level can be assigned is problematic. When a ``meets standards'' can be assigned any one of four or five different sets of performance shares, it is clear that there is lots of room for bias and arbitrariness in the system. Performance management systems and pay-for-performance systems for employees who work as parts of groups or teams need to have team citizenship taken into account as part of their performance. Otherwise, they will be motivated to maximum individual performance even at the expense of suboptimizing group performance. Performance ought to be rated and rewarded at the level at which it occurs, and particularly in the kind of service jobs at the government, it rarely occurs at the individual level. It is not clear what evaluation systems have been built into the various pay-for-performance systems. The previous panel discussed some of that, but I will make one point about that in a minute. The 2007 Annual Employee Survey results of the Department of Treasury, for example, notes that only 27 percent of employees believe pay raises are determined on how well employees perform their job. Only 32 percent of employees state they typically receive formal or informal feedback from their supervisor. Those are signs of a broken system or one that never worked in the first place. Furthermore, I think that just looking at employee reactions to systems is really the wrong measure and I was surprised that none of the people on the previous panel spoke to the real issue that private sector organizations always look for as a measure of goodness of the pay-for-performance system, and that is the performance of the organization gets better. If you are tying individual criteria and performance criteria, to organizations' success, then the measure of success of the system is whether the organization increases its success. Thank you. I will be happy to answer any questions. Senator Akaka. Thank you very much, Dr. Fay. My first question is to all of the witnesses. As we discussed on the first panel, I continue to hear from employees about the use of quotas or forced distribution of ratings. Can each of you discuss your thoughts on the use of quotas and how you would recommend agencies avoid actual or perceived quotas. Ms. Bonosaro. Ms. Bonosaro. Well, it has been an interesting phenomenon to watch. I think certainly in the first year or two, our strong suspicion is that many agencies felt that the way to achieve certification with the Office of Personnel Management and OMB of their systems was to show a substantially lower number of outstanding ratings, to push the ratings down. I think there was just no doubt that--let us simply say there was an informal message that was operating within the agencies. My guess is that is less true now. However, we still have examples of executives who find that their ratings have been reduced without explanation. Whether that arises because that political superior is unwilling to actually address substantial issues with the executive's performance or whether there is a hang-over, if you will, about the need to suppress higher ratings, it is very difficult to tell because very few of the people involved, the individual executives, want anyone to move forward and make a case out of them. They value their jobs and they recognize that doing that is not going to be to their ultimate advantage. I think, too, that there has been finally one unfortunate example that we faced where Navy had literally a PowerPoint presentation with a graph, a normal distribution curve, which they were using with regard to the SES system, and when we brought it to OPM's attention, their ultimate conclusion was that it was not a quota, it was a notional system, and I frankly don't quite understand what that meant, but rather that it was some generalized idea of perhaps how ratings should look. With regard to a remedy, the OPM regulations prohibit the use of quotas. I think that one remedy is certainly for OPM to be willing to quickly jump on every instance we can bring to their attention where we can convince an executive to permit us to do that, and another is to put that prohibition in statute, to make clear that we take it seriously. We don't have any particular recommendation for what the penalty should be if the statute is violated, but I think it would send a message that we are serious about this. And then finally, I think the message that Director Springer talked about has to be reinforced every year and pushed down through the agencies, that there is a clear interest in evaluating and rating every executive fairly and not with regard to some presupposed outcome. Senator Akaka. Thank you. Mr. Gage. Mr. Gage. Senator, just look at the time line, what DOD does in rating an employee. In October, the supervisor gives the employee a performance plan. The following September, the supervisor has to rate the employee on that performance plan, but he is forbidden to talk to the employee about that rating or to give him that rating. Then in October, he has to sit down and do a new performance plan, even though he doesn't know what is going to happen with his original rating, nor does the employee. The rating in November, or what the supervisor submitted, that rating goes to the pay pool. They do whatever they want, which is a forced distribution and apply these ratings to a curve. Then in January, the supervisor is finally told what the rating is for the employee and how much money the employee will get or not get. If this is transparent--employees are not fools, Senator. They understand that the supervisor's rating, which should be the employee's performance matched to that performance plan, has nothing to do with the real rating he is going to get or the money he is going to receive. So I suggest that the Subcommittee just look at DOD's own time line and see if it is believable, that there is not a bell curve or a forced distribution going on. Employees already know there is. Senator Akaka. Ms. Kelley. Ms. Kelley. Whether agencies acknowledge there is a quota system or not, there is, and it happens for two reasons. One, because they have this notional idea of how the workforce is performing and should be distributed, which really just makes a farce of the system. If you announce that only 25 percent of employees or some fill-in-the-blank percentage can be ``outstanding'' or excel or a role model or whatever the new term of the year is, the fact is, what you are saying to the other 75 percent of the employees is no matter how well you do, even if you are doing exactly the same thing as those top 20 or 25 percent, there are too many of you to be rated that way. So it makes the whole system a farce, and from there, the conversation has nowhere to go but down and it has zero credibility for employees. But one of the other reasons that I believe it happens is because of limited resources in the Federal Government. When the agencies are given their budgets, they then decide how they are going to divide that up, and it is a system that requires that if one employee is going to get more, that another employee will get less based on however the agency decides to distribute their funds. So there is a very real issue within the Federal Government when it comes to appropriations, but then if the agencies are not making wise decisions, it leads to very serious problems like we saw in the FDIC and in the SEC. In both of those cases, the agency announced--they announced as part of their program a forced distribution system, that only 25 percent of the employees in the FDIC, they said, could be rated at the highest level, and it had nothing to do with their annual evaluation or whatever their rating was. It was their rating plus some invisible criteria that managers would come up with. They actually gave it a name. They called it a Corporate Contribution Factor. You will find a definition of it nowhere in English, anyway, that employees can hang their hat on. And the system, as a result, had zero credibility, again, with employees. Now, as I said, the good news is the FDIC and the SEC are now sitting down with NTEU to fix that system. But whether they admit it or not, there is a forced distribution system and a quota system. They can come up with all the names with it that they want and they can say that it is a suggestion, that it is not written in stone, but it is implemented as if it is written in stone, in our experience. Senator Akaka. Mr. Breul. Mr. Breul. Mr. Chairman, I don't think there is any real room for a quota. What I would do is reframe the question a little differently and ask how many employees receive an honest performance appraisal that tells them where they really stand. It was my experience in government for many years that too often, very few receive a real honest appraisal of where they stand, and I think this is equally unacceptable. Managers can't call themselves managers unless they regularly tell their people what they are doing well and how they need to improve. So the whole notion of an honest, transparent appraisal system, I think is an essential element here. Senator Akaka. Thank you. Dr. Fay. Mr. Fay. Yes, Senator Akaka. You know, faculty deal with the same problem all the time in grading. Everybody wants to make an A. It doesn't happen that way. What does happen is if you develop a measure of learning or performance that accurately describes or accurately taps what people are supposed to have done, then if you rate against standards, you will get whatever distribution you get. I think it would be great if every employee in the government got an ``outstanding'' and deserved it. I think it is pretty bad if they all get it and they don't deserve it, but I think it is equally bad if 57 percent of them get a ``meets standards'' just for some financial purpose. As a couple of people have said, employees are not stupid. They figure this stuff out and nothing loses credibility for a system faster than having any kind of artificial constraint on where people come out. Private sector organizations face the same problem and what they do is a senior manager will go into a junior manager and say, ``I noticed you gave everybody in your unit an `outstanding.' If they are all outstanding, how come your department is a failure?'' That is, performance rating has to roll up the organization just as the goals of the organization roll down, and if a department is performing in an outstanding fashion against whatever criteria the organization has set for that unit, then maybe everybody in the department does deserve an ``outstanding.'' If the department is failing, maybe everybody deserves a ``non-acceptable.'' Senator Akaka. Thank you very much, Dr. Fay. Senator Voinovich. Senator Voinovich. I am certainly glad that I am here today to hear this testimony. I am going to get the transcript of what Mr. Gage and Ms. Kelley had to say today and I am going to get it over to the Departments and get to the bottom of this, because if what you are saying is true, it is shocking. It is not what we intended to do. So I just want you to know that we are definitely going to follow up on what we have heard today, or I have heard today. How much do you think of some of what is going on is the result of agencies not having the budget that they ought to have and they are trying to figure out how they can cut back, and as a result of that, the systems get shortchanged? Mr. Gage. I think that is at the bottom of this whole system. I have talked with some of our base commanders, who are very good people and have run very fair bases, and they said, ``with this new pay-for-performance, my money is very tight. Of course, I am going to tap into that and I am not going to use it for employees. I am almost forced to do it.'' So I think this is just an elaborate scheme, Senator, to reduce overall Federal pay. And if you go through the mechanics of it like we have had to do just to try to understand it, it is just fraught with bias and prejudice and it is a system that it is going to be very hard to get out--it is just not going to be named abuse. So I had better ideas of this. I think Colleen did, too. We really tried to work with some of these agencies. DOD refused to work with any of the unions. But I am really concerned that this is the end of the good part of the civil service as we know it. Ms. Kelley. I think definitely the resources is the starting point of the problem, but they are given X resources and then the question is how you spend it, and whether you are going to build a system that has any credibility to employees or not. That is not what has been done. In fact, as I listened to Dr. Fay, I will give you another example of what we see happen often that is, managers receive bonuses and awards and not one employee in their group is recognized with an award or any kind of recognition. So how could that manager be so successful if every one of their employees were just OK and did nothing to be recognized? I mean, there are a lot of flaws in the system that, for me, are about implementation. So even if you start with the fact there is not enough money, which there is not, and the agencies need to be funded to be able to recognize the top performers, that money should be provided. But whatever the pool of money is, then the credibility with which it is distributed is about implementation. So it is really a two-part question for me. It is, yes, the resources are needed, but then the agencies should be accountable for the implementation of how they spend that money and how they recognize and reward employees. And today, I have yet to see a system that I could point to that I would say NTEU would support, and I would like to see that. I have looked at every one of these systems that OPM and that the Administration point to as successes and employees will tell you every one of them is an abysmal failure. Senator Voinovich. Ms. Bonosaro, would you like to comment, and then I have another question for you. Ms. Bonosaro. I think that certainly has been somewhat of a problem in regard to the SES system, and obviously all of the pay adjustments in the Senior Executive Service are now totally discretionary with the agencies so that even budget issues aside, an agency could determine not to grant any pay adjustments. But certainly we have seen some examples over the years where budget has entered into it. I think right now, there has been a decision at the NLRB, for example, to give no performance awards because of budgetary problems. I think, too, that sometimes what we have thought is that perhaps the reason that performance awards have been more forthcoming than more substantial pay adjustments in the SES is because you don't then build that into salary. It is a one-time payment. So that is one of the reasons why one of the legislative provisions we are recommending is to guarantee that some budget be devoted to the system. Senator Voinovich. We have had 2 or 3 years of pay for performance in SES and we still have some agencies that are doing great and others are not doing so great. Would you like to comment about, first of all, where the agencies aren't doing a good job, at least from the surveys that come back, if OPM has really done an adequate job of getting in there and working with them to find out what is wrong and why it is not working in terms of what they are doing versus another agency where the folks understand the system and seem to be satisfied with it. Ms. Bonosaro. Well, I think just taking one of the areas where the differences between agencies, where it is most obvious was with regard to transparency and communicating results and information about the system, and there were tremendous differences between the agencies, which was really difficult to understand because it is not rocket science to share these results with executives. I think there, OPM Director Springer really did make a very strong effort as part of the certification process to make clear to agencies that communication was critical. So it really is difficult to understand what is going on there. I honestly don't have a good enough sense of exactly what they are doing beyond the work in the CHCO Council with regard to some of the agencies. One of the problems, I think, that makes it difficult to fully understand some of the disconnects is that all of the data we see, for example, with regard to pay adjustments, are averages. So when we see, for example, that Senior Executives rated ``fully successful'' receive an average 2 percent pay increase, we don't know how many receive no pay increase or how many receive a 1 percent pay increase or a 5 percent pay increase. So some of the data really masks some of the differences. But there are very clear differences and I think one of the really striking things were some of the poor results at OMB, which is charged with acting with regard to agency certifications in the system. So it is, frankly, a bit baffling. Senator Voinovich. I am very frustrated because we still have some poor performers out there, and apparently even with OPM involved. Is it your impression that is not being done, that there is not enough concern at OMB to try to make sure that the system is successful, or do you think they are just hiding behind the budget, too? Ms. Bonosaro. I honestly don't know. I wish we had a good answer for you. I think a lot of this--we have to go back to the beginning and the fact that this legislation was adopted with no hearings. There is no legislative history. So in essence, OPM developed regulations that took almost a year to do. Agencies didn't get geared up quickly enough, and then they were scrambling. I think the learning curve has been pretty steep and there wasn't enough, at least early enough on, not sharing between the agencies that knew what they were doing or trying to do it well and enough clear guidance from OPM. But then you had two agencies both involved in looking at these systems. So I think, frankly, it didn't get off to a very good launch and now you are trying to clean it up, frankly. Senator Voinovich. Is the CHCO Council doing any good? I mean, it has been in place for 5 years and we have elevated human capital to a higher level, supposedly, in the Federal Government where people are paying more attention to the people that work in the agencies. Is it--or you don't see any difference? Ms. Bonosaro. Those of us at this table are invited to the CHCO Council meetings once a year, so it is a little difficult to comment on what they are doing the rest of the time. One of the things, though, that we do believe is that if we still had the office in OPM that oversaw--that was kind of a focal point for the Executive Corps, that we would have a much clearer understanding of what they were doing and there would be some clearer direction. Now, OPM, Linda Springer may well disagree with that, but there are several parts of OPM that have been involved in this process and I think one clear focal point, having this under their wing, certainly would have been helpful. And also a good deal more sharing among the agencies that were doing well. It is just my impression that did not get started early enough and well enough. Senator Voinovich. Well, I will just finish up with this, that I think the communication is extremely important and there ought to be a vehicle there at OMB for that to go on. I know way back when we got started, I think President Clinton had where you had a chance to meet with the Administration. Wasn't there something set up in the President's office where the unions had a chance to come in and talk to some folks and have a chance to have your voice heard at a high level? Mr. Gage. Yes. Senator Voinovich. One of the things that Senator Akaka and I might do is just to maybe look at some of these things, and whoever the next President is, make some recommendations on how we think we can improve the situation to get this flow of information. I can't believe, you say you can't even get over and talk to the people at the Defense Department. That is just incredible. Thanks. Senator Akaka. Thank you, Senator Voinovich. Mr. Gage, you heard Mr. Bunn's response to my question over DOD's intention with the definition of rate of pay. What are your thoughts on his answer? Mr. Gage. Well, they have taken ``rate of pay,'' which is pretty simple, three words, and wrote about 12 pages of regulations that it would go into every aspect of pay, even procedures put in for fairness to employees over time, differentials in pay, night differentials. It would be all subject to management discretion, non-negotiable, can't talk about it. Don't take my word, Senator. It is right there in the regulations. We have had a number of experts around and met with all our people and I feel it is really--it is shameful, what they did, especially after Congress very directly told them that this stuff was negotiable and restored our bargaining rights, and for them to come about regulations and then try to submit it at the end of this Congress, and you know this 60-day rule, if you all don't do anything, it is in effect, and it is just--well, I think it is dirty pool. It is certainly not the way to have a discussion or a collaboration on something as important as this. Senator Akaka. Dr. Fay, you testified for pay-for- performance to work in the Federal Government, there has to be a legitimate appeals system in place for employees who feel they have been treated arbitrarily or in a biased fashion. What in your opinion comprises an adequate appeals system? Do you believe the systems in place at Federal agencies, particularly ones we have discussed today, have adequate appeals systems? Mr. Fay. I can't speak to all of those agencies, but let me give you an example from IBM, which is a non-unionized company, generally speaking. They have a system where if an employee feels that he or she has been mistreated, arbitrarily treated by the organization, that they go first to the HR unit. If the HR unit cannot resolve it to the employee's satisfaction, it then goes into a system where someone from a different part of the organization comes in and hears it, hears the problem and makes a decision. When it first started, there were a significant number of those where managers got fired, got pay reduced, had a variety of bad things happen to them. As time has gone on, managers understand that you can't treat people arbitrarily or unfairly and so a far smaller percentage do, in fact, turn out in favor of the employee. But they still run--and another thing they do that I think is pretty remarkable, very few private companies do this, they put the person who made the complaint into a pool with other people who have made complaints. They select another pool who are equivalent in terms of their performance, in terms of their education, a variety of things. So they have parallel pools. And then they track the pools and make sure that people who filed a complaint don't end up out in limbo or laid off or anything at any greater rate than members of the other pool. That is, they go beyond just hearing and correcting when they see things are bad. They do two things I think are important. One is that managers who do behave in an arbitrary, capricious fashion feel it. They learn not to do that very quickly if they stay. And then second, they follow up to make sure that the employee does not suffer from having made a complaint, whether it is a supported complaint or not a supported complaint. You know the problems that whistleblowers in government agencies have and this was IBM's attempt, and a very successful one, to prevent people who filed this particular kind of complaint from being retaliated against. Senator Akaka. Well, let me ask my final question to Mr. Gage and Colleen Kelley. I am very concerned about the low morale reported at TSA and the disturbing picture painted by the responses to the 2007 DHS employee survey. Based on feedback that you all received from employees, what are the biggest concerns employees have with the TSA Performance and Accountability Standards System (PASS)? Mr. Gage. Mr. Gage. I interview TSA employees probably once a month and, for instance, they are supposed to do this one test with a contractor and it basically is they have to pat down, I believe it is a Lockheed contractor person and they don't get any feedback from the person they are patting down. But if they do something wrong in that pat down, they see that they are rated badly for that very important standard and they don't know why. Their supervisor doesn't know why. He wasn't there. He didn't do it. So there are so many of these things, while they say they are objective standards, they are not objective as far as the employee is concerned. He doesn't even know what he did wrong. And I hear that again and again and again. The same thing with the image test, which is completely unfair. Yet they say, well, you flunked the test, but why did I flunk it? How did I flunk it? What did I do wrong? I think I am a good TSO Officer. So I think that is one of the big things, but the other thing is the inflexibility of their leave policies and working conditions. Those are really the two big complaints that I get. Ms. Kelley. And I would add that the third one is the issue of pay and pay raises. There is no TSO who knows what it is they have to do to get a better pay raise next year, and they would tell you that pay raises are distributed based on favoritism and cronyism, not based on skills; not based on performance of the job. And they would say that in the same way it is true for promotions, whether it is to a lead TSO position or to a manager position. Senator Akaka. Senator Voinovich. Senator Voinovich. As I say, I do my own personal survey and the last couple of years, I am getting better responses from people, but I will say that some of them think that their evaluation is too subjective. I am aware of the fact that somebody else is doing it, and what you are basically saying is that once it is done, employees don't get any feedback about where it was that they failed and they are left in the dark about their performance. Mr. Gage. And by a contractor. Senator Voinovich. Yes. I wasn't aware of the details of the contract. Ms. Kelley. Well, the $1.2 billion contract I mentioned is a new Lockheed Martin contract, and that is for them to develop and deliver a human resources system and delivery of their pay system. So that is an additional $1.2 billion, with a B, contract, in addition to the one that Mr. Breul mentioned where they actually come in and conduct the testing of the TSOs. Senator Voinovich. How long ago was that contract signed? Ms. Kelley. I believe within the last 6 to 8 weeks. It is very recent. Senator Voinovich. I will check into it. Mr. Gage, you testified that DOD refused to work with the unions. Do you have any examples of when you have been over there and tried to get some input with them, and who do you contact there? Mr. Gage. Well, I have known Mary Lacey for a long time. I used to--when she was down at Indian Head. It was pretty clear during the last session of Congress where we were at loggerheads certainly on the collective bargaining aspects of NSPS, and we tried some negotiation--one meeting. But it was very obvious that there just wasn't discussion. There just wasn't an attitude of, well, what are your concerns and how can we work to answer some of your concerns. It was basically very--and through the whole collaboration process, it was an our way or the highway type of approach and there was no collaboration. There was no discussion. And I thought that was kind of odd because Ms. Lacey and I had done a lot of business in the past. But on this--this was a much different thing. I think DOD as an organization had their mind made up and they were going to do it their way and there was no looking back and no turning around. Senator Voinovich. I think one of the things that I understood was is that in terms of the implementation of the system, the people that are going into the system now are really not the unionized employees. Mr. Gage. Oh, yes. Well, they haven't been. But under these new regulations--see, we have wage grade exempted. They are out of NSPS totally. Why, you might ask? That is a good question. But the GS, the GS people now are the ones that are--the GS bargaining unit, non-management types, they are the ones that will be going into NSPS in these coming spirals under these new regulations that they put in. So we are completely concerned about that and---- Senator Voinovich. My understanding is that they still have to go down some more spirals before they touch those people in the Defense Department that are members of your union---- Mr. Gage. They are talking about this fall, or the fall next year. Senator Voinovich. Next year. Mr. Gage. Yes. Senator Voinovich. And that part of the reason why that they may not have had the level of discussion you would like is because they haven't gotten to your people yet. That is what I have heard. When we have had Mary Lacey in, she seems to be very committed to the system. Thank you. Senator Akaka. Well, I want to thank this panel. The performance of Federal agencies, as we know, depends on the ability of its workforce to trust the system that governs employee pay and performance. From improving transparency and communication to ending quotas or the perception thereof, there remain many problems with pay-for-performance systems at Federal agencies. We must address these issues in order to maintain the integrity and the trust of our civil service and ensure that the Federal Government is an employer of choice. Again, I want to thank all of the witnesses for being here today. I look forward to continuing to work with you and with Senator Voinovich to address these issues. The hearing record will remain open for 1 week for additional statements and questions from Members. This hearing is adjourned. [Whereupon, at 4:56 p.m., the Subcommittee was adjourned.] A P P E N D I X ---------- [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]