NSPS is intended to be a major component of DOD’s efforts to more  strategically manage its workforce and respond to current and emerging  challenges. As a result,  from a conceptual standpoint, we strongly support the need to expand  broad banding approaches and pay for performance-based systems in the  federal government. However, moving too quickly or prematurely at DOD  or elsewhere can significantly raise the risk of doing it wrong. This could  also serve to severely set back the legitimate need to move to a more  performance and results-based system for the federal government as a  whole. Thus, while it is imperative that we take steps to better link  employee pay to performance across 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 or not such efforts are successful. In our view, one  key need is to modernize performance management systems in executive  agencies so that they are capable of adequately supporting more  performance-based pay and other personnel decisions. Unfortunately,  based on GAO’s past work, most existing federal performance appraisal  systems, including a vast majority of DOD’s systems, are not designed to  support a meaningful performance-based pay system. This approach would  serve as a positive step to promote high-performing organizations  throughout the federal government while avoiding fragmentation within  the executive branch in the critical human capital area. To underscore the importance that  Congress places on employee involvement in the development and  implementation of NSPS, Congress should consider including similar  language as that found in the Homeland Security Act. Concluding Observations

In summary, DOD’s civilian human capital proposals raise several critical  questions. Does DOD  have the institutional infrastructure in place to make effective use of the  new authorities? This institutional infrastructure includes, at a minimum, a  human capital planning process that integrates the agency’s human capital  policies, strategies, and programs with its program goals and mission, and  desired outcomes; the capabilities to effectively develop and implement a  new human capital system; and a set of adequate safeguards, including  reasonable transparency and appropriate accountability mechanisms to  ensure the fair, effective, and credible implementation and application of a  new system. Many of the basic principles underlying DOD’s civilian human capital  proposals have merit and deserve the serious consideration they are  receiving here today and will no doubt be received by others in the coming  weeks and months. However, the same critical questions should be posed  to the DOD proposal. Should DOD and/or other federal agencies be  granted broad-based exemptions from existing law, and if so, on what  basis? In our view, Congress should consider providing governmentwide broad  banding and pay for performance authorities that DOD and other federal  agencies can use provided they can demonstrate that they have a  performance management system in place that meets certain statutory  standards, which can be certified to by a qualified and independent party,  such as OPM. Congress should also consider establishing a  governmentwide fund whereby agencies, based on a sound business case,  could apply for funds to modernize their performance management  systems and ensure that those systems have adequate safeguards to  prevent abuse.
Why GAO Did This Study

DOD is in the midst of a major transformation effort including a number of initiatives to transform its forces and improve its business operations. DOD's legislative initiative would provide for major changes in the civiliean and military human capital management, make major adjustments in the DOD acquisition process, affect DOD's organization structure, and change DOD's reporting requirements to Congress, among other things. DOD's proposed National Security Personnel System (NSPS) would provide for wide-ranging changes in DOD's civilian personnel pay and performance management, collective bargaining, rightsizing, and a variety of other human capital areas. The NSPS would enable DOD to develop and implement a consistent DOD-wide civilian personnel system. This testimony provides GAO's preliminary observations on aspects of DOD's legislative proposal to make changes to its civilian personnel system and poses critical questions that need to be considered.

What GAO Found

Many of the basic principles underlying DOD's civilian human capital proposals have merit and deserve serious consideration. The federal personnel system is clearly broken in critical respects--designed for a time and workforce of an earlier era and not able to meet the needs and challenges of our current rapidly changing and knowledge-based environment. DOD's proposal recognizes that as GAO has stated and the experiences of leading public sector organizations here and abroad have found strategic human capital management must be the centerpiece of any serious government transformation effort. More generally, from a conceptual standpoint, GAO strongly supports the need to expand broad banding and pay for performance-based systems in the federal government. However, moving to quickly or prematurely at DOD or elsewhere, can significantly raise the risk of doing it wrong. This could also serve to severely set back the legitimate need to move to a more performance and results-based system for the federal government as a whole. Thus, while it is imperative that we take steps to better link employee pay and other personnel decisions to performance across the 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 or not we are successful. In our view, one key need is to modernize performance management systems in executive agencies so that they are capable of supporting more performance-based pay and other personnel decisions. Unfortunately, based on GAO's past work, most existing federal performance appraisal systems, including a vast majority of DOD's systems, are not currently designed to support a meaningful performance-based pay system. The critical questions to consider are: should DOD and/or other agencies be granted broad-based exemptions from existing law, and if so, on what bas; and whether they have the institutional infrastructure in place to make effective use of the new authorities. This institutional infrastructure includes, at a minimum, a human capital planning process that integrates the agency's human capital policies, strategies, and programs with its program goals and mission, and desired outcomes; the capabilities to effectively develop and implement a new human capital system; and, importantly, a set of adequate safeguards, including reasonable transparency and appropriate accountability mechanisms to ensure the fair, effective, and credible implementation of a new system. In our view, Congress should consider providing governmentwide broad banding and pay for performance authorities that DOD and other federal agencies can use provided they can demonstrate that they have a performance management system in place that meets certain statutory standards, which can be certified to by a qualified and independent party, such as OPM, within prescribed timeframes. Congress should also consider establishing a governmentwide fund whereby agencies, based on a sound business case, could apply for funding to modernize their performance management systems and ensure that those systems have adequate safeguards to prevent abuse. This approach would serve as a positive step to promote high-performing organizations throughout the federal government while avoiding fragmentation within the executive branch in the critical human capital area.