	Preliminary Observations on the Final DHS Human Capital Regulations

The final regulations establish a new human capital system for DHS that is  intended to assure its ability to attract, retain, and reward a workforce that  is able to meet its critical mission. We continue to believe that many of the basic principles underlying the  DHS regulations are generally consistent with proven approaches to  strategic human capital management. Today, I will provide our preliminary  observations on the following elements of DHS’s human capital system as  outlined in the final regulations—pay and performance management,  adverse actions and appeals, and labor-management relations. The final DHS regulations include other elements of a modern  compensation system. While the DHS regulations contain many elements of a performance-based  and market-oriented pay system, there are several issues that we identified  last year that DHS will need to continue to address as it moves forward  with the implementation of the system. We  identified multiple implementation challenges at last year’s hearing. We believe that these challenges are still critical to the success of the new  human capital system. 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. Establishing an Overall Communication Strategy

Another significant challenge for DHS is to assure an effective and ongoing  two-way communication strategy that creates shared expectations about,  and reports related progress on, the implementation of the new system. According to  DHS, its communication strategy will include global e-mails, satellite  broadcasts, Web pages, and an internal DHS weekly newsletter. Nevertheless, regarding the  implementation of the DHS system, how it is done, when it is done, and the  basis on which it is done can make all the difference in whether it will be  successful. DHS appears to be committed to continue to involve employees, including  unions, throughout the implementation process, another critical ingredient  for success. Specifically, under DHS’s final regulations, employee  representatives or union officials are to have opportunities to participate in  developing the implementing directives, as outlined under the “continuing  collaboration” provisions; hold four membership seats on the Homeland  Security Compensation Committee; and help in evaluations of the human  capital system. Many of the basic principles underlying  the DHS regulations are consistent with proven approaches to strategic  human capital management, including several approaches pioneered by  GAO, and deserve serious consideration. However, some parts of the system  raise questions that DHS, OPM, and Congress should consider. DHS was provided with significant  flexibility to design a modern  human capital management system. DHS has begun strategic human capital planning efforts at the  headquarters level since the release of the department’s overall strategic  plan and the publication of proposed regulations for its new human  capital management system. Sustained and committed leadership is  required on multiple levels: securing appropriate resources for the  design, implementation, and evaluation of the human capital  management system; communicating with employees and their  representatives about the new system and providing opportunities for  feedback; training employees on the details of the new system; and  continuing opportunities for employees and their representatives to  participate in the design and implementation of the system.
Why GAO Did This Study

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. 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 preliminary observations on selected provisions of the final regulations.

What GAO Found

GAO believes that the regulations contain many of the basic principles that are consistent with proven approaches to strategic human capital management. For example, many elements for a modern compensation system--such as occupational clusters, pay bands, and pay ranges that take into account factors such as labor market conditions--are to be incorporated into DHS's new system. However, these final regulations are intended to provide an outline and not a detailed, comprehensive presentation of how the new system will be implemented. 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. The implementation challenges we identified last year are still critical to the success of the new system. Also, DHS appears to be committed to continue to involve employees, including unions, throughout the implementation process. Specifically, according to the regulations, employee representatives or union officials are to have opportunities to participate in developing the implementing directives, hold four membership seats on the Homeland Security Compensation Committee, and help in the design and review the results of evaluations of the new system. Further, GAO believes that to help ensure the quality of that involvement, DHS will need to ensure sustained and committed leadership. A Chief Operating Officer/Chief Management Officer or similar position at DHS would serve to elevate, integrate, and institutionalize responsibility for this critical endeavor and help ensure its success by providing the continuing, focused attention needed to successfully complete the multiyear conversion to the new human capital system. DHS will need to establish an overall communication strategy. According to DHS, its planned communication strategy for its new human capital system will include global e-mails, satellite broadcasts, Web pages, and an internal DHS weekly newsletter. 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. 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. GAO's implementation of its own human capital authorities, such as pay bands and pay for performance, could help inform other organizations as they design systems to address their human capital needs. The final regulations for DHS's new system are especially critical because of the potential implications for related governmentwide reforms.