Effective performance management  systems first align leadership’s performance expectations, appraisals, and  pay with organizational goals and results achieved, then cascade this  approach through all levels in the organization. Some Agencies May Face a Challenge in Meeting Criteria for Qualifying for the New Executive Pay Flexibilities

The criteria that OPM has developed to assess agencies’ performance  management systems are consistent with our research wherein we  identified a set of key practices for effective performance management: aligning individual performance expectations with organizational goals,   connecting performance expectations to crosscutting goals,  providing and routinely using performance information to track   requiring follow-up actions to address organizational priorities,  using competencies to provide a fuller assessment of performance,  linking pay to individual and organizational performance,  making meaningful distinctions in performance,  involving employees and stakeholders to gain ownership of  performance management systems, and  maintaining continuity during transitions. The Chief Human Capital Officers Have the Potential to More Strategically Implement Flexibilities and Leverage Best Practices among Agencies

The success agencies have in implementing new human capital flexibilities  will depend in large measure on their agency leadership, the existence of  high quality Chief Human Capital Officers (CHCOs), and a strategic and  effective CHCO Council. As just one  illustration of the importance of their leadership and coordination roles,  OPM agreed with our May 2003 recommendation to work with and through  the Council to (1) more thoroughly research, compile, and analyze  information on the effective and innovative use of human capital  flexibilities and (2) more fully serve as a clearinghouse in sharing and  distributing information about when, where, and how the broad range of  flexibilities are being used, and should be used, to help agencies meet their  human capital management needs. Strategic Human Capital Planning Can Help Agencies Take Advantage of Human Capital Flexibilities but Remains a Continuing Challenge

An essential element in the institutional infrastructure that agencies need  for their human capital management is a human capital planning process  that ensures that an agency will capitalize on its workforce’s strengths and  target the use of its flexibilities. We have continued to report  opportunities for various agencies to improve the state of their human  capital planning. While agencies’ approaches to workforce planning will vary, GAO identified  five key principles that this planning should consistently address:  Involve top management, employees, and other stakeholders in  developing, communicating, and implementing the strategic workforce  plan. Figure 1 illustrates a model strategic human capital planning process that  can help to inform agencies’ efforts to define their workforces of the future. Congress, OPM, and agencies have  all undertaken efforts to help improve the process. Agencies cited a number of  barriers to using these flexibilities, including a lack of policy and guidance  on these tools. GAO’s Experiences with Human Capital Reform

GAO exists to support Congress in meeting its constitutional  responsibilities and to help improve the performance and ensure the  accountability of the federal government for the benefit of the American  people. We believe that the GAO  Human Capital Reform Act is well reasoned with adequate safeguards for  GAO employees. A Consistent Set of Principles, Criteria, and Processes Can Help Guide Future Reforms

In the future, agencies most likely will continue to request some of the  flexibilities and reforms granted to agencies such as GAO, DOD, and DHS,  as they strive to become higher-performing and results-based  organizations. To qualify for these reforms,  agencies should be able to demonstrate that they have the necessary  infrastructure in place before they are authorized to implement significant  human capital flexibilities and authorities. Congress has provided  agencies, including DOD and DHS, with broad human capital authorities to  help them with their transformations. Agencies are taking advantage of  these provided flexibilities but continue to face some barriers. Agencies will need to continue implementing these tools, evaluating the  results achieved, and adjusting implementation, especially if they are to use  their resources most wisely in a fiscally constrained environment. The  Subcommittee’s and Congress’ interest in monitoring agencies’ progress  with these new human capital tools and willingness to adjust and support  them are a critical ingredient to success. Finally, in granting these, or more comprehensive  governmentwide reforms, we have offered Congress a framework, a set of  consistent principles, criteria, and processes to consider as it designs the  federal human capital system for the 21st century.
Why GAO Did This Study

Strategic human capital is the centerpiece of agencies' efforts to transform into high-performing organizations poised to meet the challenges of the 21st Century. Congress, recognizing that the federal human capital management systems designed in the past are outmoded, has provided agencies with exemptions from the old rules and new flexibilities to more strategically manage their workforce. Congress has already granted statutory exemptions and new authorities affecting more than 1.2 million civilian federal employees. The momentum is building to continue to reform the policies, processes, and systems that govern federal human capital management. Congress is interested in taking stock of how agencies have implemented the new flexibilities they have been granted, especially as it considers the future steps to be taken to achieve human capital reform. At the request of Congress, this statement provides an update of GAO's work on the progress agencies have made in implementing these flexibilities to better accomplish their missions and achieve their goals. In addition, it provides information on GAO's experiences with human capital reform and also highlights a set of consistent principles, criteria, and processes that can help to guide future reforms, whether they are new flexibilities granted to individual agencies or applied governmentwide.

What GAO Found

To take full advantage of the flexibilities provided, agencies need leaders committed to taking a more strategic approach to managing their people in order to improve mission results, and must have the necessary infrastructure in place to make effective use of the flexibilities. This infrastructure includes a human capital planning process that integrates human capital policies, strategies, and programs with its program goals, mission, and desired outcomes; the capabilities to effectively develop and implement a new human capital system; and importantly, the existence of a modern, effective, and credible performance management system that includes adequate safeguards to help ensure consistency. GAO's work shows that, to date, agencies are using the flexibilities to varying degrees but continue to face barriers. In the future, agencies should have to demonstrate they have the required infrastructure and safeguards in place before using any new human capital authorities. Accountable Leadership: Effective performance management systems first align leadership's performance expectations, appraisal systems, and compensation programs with organizational goals and results, then cascade this approach through all levels in the organization. Accordingly, agencies now have authority to increase senior executive pay levels, but only if they have an effective performance management system--one that links individual and organizational results and makes meaningful distinctions in performance. Recent data show, however, that agencies face a challenge in meeting the criteria for qualifying for the new executive pay flexibilities. GAO also continues to see opportunities for Chief Human Capital Officers and their Council to help agencies better implement various flexibilities and share best practices, while providing strategic leadership for reform. Strategic human capital planning: Identifying current and future workforce gaps and ways to use flexibilities to fill them would help agencies remain competitive and achieve their missions. Some agencies do not have all the components of a strategic human capital planning process in place to help them resolve workforce challenges. GAO identified five key principles that could help guide and inform agencies' efforts to build this process. Capabilities to use new tools: Agencies have not used some of the flexibilities designed to help them recruit and hire top talent as much as possible because of a lack of policy and guidance, among other things. OPM has since reported taking a number of initiatives to better educate agencies on the tools and encourage their use. Agencies need to continue implementing new tools, evaluating their impact, and making adjustments. Congress' interest in monitoring agency progress is a critical ingredient to the success of these reforms.