Among the key  provisions is a performance-oriented and market-based pay system. However, as DHS develops its implementing directives, the  experiences of leading organizations suggest that DHS should reconsider  its position to merely allow, rather than require, the use of core  competencies that employees must demonstrate as a central feature of its  performance management system. DHS is to require the use of a least three summary rating levels for other  employee groups. A Chief Operating  Officer/Chief Management Officer (COO/CMO) or similar position can  effectively provide the continuing, focused attention essential to  successfully completing these multiyear transformations. Especially for such an endeavor as critical as DHS’s new human capital  system, such a position would serve to   elevate attention that is essential to overcome an organization’s natural  resistance to change, marshal the resources needed to implement  change, and build and maintain the organizationwide commitment to  new ways of doing business;   integrate this new system with various management responsibilities so  they are no longer “stovepiped” and fit it into other organizational  transformation efforts in a comprehensive, ongoing, and integrated  manner; and   institutionalize accountability for the system so that the implementation  of this critical human capital initiative can be sustained. Involving Employees and Other Stakeholders in Implementing the System

We reported in September 2003 that DHS’s and OPM’s effort to design a  new human capital system was collaborative and facilitated participation  of employees from all levels of the department.We recommended that the  Secretary of DHS build on the progress that had been made and ensure that  the communication strategy used to support the human capital system  maximize opportunities for employee and key stakeholder involvement  through the completion of design and implementation of the new system,  with special emphasis on seeking the feedback and buy-in of frontline  employees. It is equally important for the agency to ensure it has the  necessary infrastructure in place to implement the system, not only an  effective performance management system, but also the capabilities to  effectively use the new human capital authorities and a strategic human  capital planning process. “Highlights” from Selected GAO Human Capital Reports

At the center of any agency  transformation, such as the one  envisioned for the Department of  Homeland Security (DHS), are the  people who will make it happen. Thus, strategic human capital  management at DHS can help it  marshal, manage, and maintain the  people and skills needed to meet its critical mission. DHS and the  Office of Personnel Management  (OPM) have now jointly released  the final regulations on DHS’s new  human capital system. GAO believes that the regulations contain many of the basic principles that  are consistent with proven approaches to strategic human capital  management. Thus, DHS has  considerable work ahead to define the details of the implementation of its  system and understanding these details is important in assessing the overall  system. Last year, with the release of the  proposed regulations, GAO  observed that many of the basic  principles underlying the  regulations were consistent with  proven approaches to strategic  human capital management and  deserved serious consideration. However, some parts of the human  capital system raised questions for  DHS, OPM, and Congress to  consider in the areas of pay and  performance management, adverse  actions and appeals, and labor  management relations. GAO also  identified multiple implementation  challenges for DHS once the final  regulations for the new system  were issued. A key implementation step for DHS is to assure  an effective and on-going two-way communication effort that creates  shared expectations among managers, employees, customers, and  stakeholders. This testimony provides  preliminary observations on  selected provisions of the final  regulations. While GAO strongly supports human capital reform in the federal  government, how it is done, when it is done, and the basis on which it is  done can make all the difference in whether such efforts are successful. The final  regulations for DHS’s new system are especially critical because of the  potential implications for related governmentwide reforms. Congress provided DHS with  significant flexibility to design a  modern human capital  management system. 1.
Why GAO Did This Study

People are critical to any agency transformation, such as the one envisioned for the Department of Homeland Security (DHS). They define an agency's culture, develop its knowledge base, and are its most important asset. Thus, strategic human capital management at DHS can help it marshal, manage, and maintain the people and skills needed to meet its critical mission. Congress provided DHS with significant flexibility to design a modern human capital management system. DHS and the Office of Personnel Management (OPM) have now jointly released the final regulations on DHS's new human capital system. Last year, with the release of the proposed regulations, GAO observed that many of the basic principles underlying the regulations were consistent with proven approaches to strategic human capital management and deserved serious consideration. However, some parts of the human capital system raised questions for DHS, OPM, and Congress to consider in the areas of pay and performance management, adverse actions and appeals, and labor management relations. GAO also identified multiple implementation challenges for DHS once the final regulations for the new system were issued. This testimony provides overall observations on DHS's intended human capital system and selected provisions of the final regulations.

What GAO Found

GAO believes that DHS's regulations contain many of the basic principles that are consistent with proven approaches to strategic human capital management. Positively, the final regulations provide for (1) a flexible, contemporary, performance-oriented, and market-based compensation system, including occupational clusters and pay bands; (2) continued involvement of employees and union officials throughout the implementation process, such as by participating in the development of the implementing directives and holding membership on the Homeland Security Compensation Committee; and (3) evaluations of the implementation of DHS's system. On the other hand, GAO has three areas of concern that deserve attention from DHS senior leadership. First, DHS has considerable work ahead to define the details of the implementation of its system and getting those details right will be critical to the success of the overall system. Second, the performance management system merely allows, rather than requires, the use of core competencies that can help to provide reasonable consistency and clearly communicate to employees what is expected of them. Third, the pass/fail ratings or three summary rating levels for certain employee groups do not provide the meaningful differentiation in performance needed for transparency to employees and for making the most informed pay decisions. Going forward, GAO believes that especially for this multiyear transformation, the Chief Operating Officer/Chief Management Officer concept could help to elevate, integrate, and institutionalize responsibility for the success of DHS's new human capital system and related implementation and transformation efforts. Second, a key implementation step for DHS is to assure an effective and on-going two-way communication effort that creates shared expectations among managers, employees, customers, and stakeholders. Last, DHS must ensure that it has the institutional infrastructure in place to make effective use of its new authorities. At a minimum, 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 assure consistency and prevent abuse. While GAO strongly supports federal human capital reform, how it is done, when it is done, and the basis on which it is done can be the difference between success and failure. Thus, the DHS regulations are especially critical because of their potential implications for related governmentwide reform.