This type of system is a critical  component of a larger effort to improve organizational performance. Lessons Learned in Creating a Market-Driven, Results-Oriented Pay System

Our 2005 work showed that implementing a more market-based and  more performance-oriented pay system is both doable and desirable. Moreover, representatives of  public, private, and nonprofit organizations, in discussing the successes  and challenges they have experienced in designing and implementing  their own results-oriented pay systems, told us at the time they had to  shift from a culture where compensation is based on position and  longevity to one that is performance-oriented, affordable and sustainable. Focus on a set of values and objectives to guide the pay system. 2. Examine the value of employees’ total compensation to remain  competitive in the labor market. 3. Build in safeguards to enhance the transparency and ensure the  fairness of pay decisions. 4. Devolve decision-making on pay to appropriate levels. 5. 6. Build consensus to gain ownership and acceptance for pay reforms. 7. Monitor and refine the implementation of the pay system. Additional Steps Agencies Can Take to Be Competitive in the Labor Market and Address Skills Gaps

		Agency Actions Can Help Transform Personnel Management

Our prior work has found that across a range of human capital functions,  while in some cases statutory changes may be needed to advance  reforms, in many instances improvements are within the control of federal  agencies. Indeed, Congress has already provided agencies with a  number of tools and flexibilities to help them build and maintain a high- performing workforce. As we noted in our 2017 high-risk update, agencies can drive  improvements to their high risk areas—including strategic human capital  management—through such steps as:
Sustained leadership commitment, including developing long-term  priorities and goals, and providing continuing oversight and  accountability;
Ensuring agencies have adequate capacity to address their personnel  issues, including collaborating with other agencies and stakeholders  as appropriate;   Identifying root causes of problems and developing action plans to  address them, including establishing goals and performance  measures;
Monitoring actions by, for example, tracking performance measures  and progress against goals; and
Demonstrating progress by showing issues are being effectively  managed and root causes are being addressed. This  framework is to be used in 2017 by agencies to plan, implement,  evaluate, and improve human capital policies and programs. By analyzing  hiring authorities, OPM and agencies could identify opportunities to refine  authorities, expand access to specific authorities found to be highly  efficient and effective, and eliminate those found to be less effective. The GS System Could Better Balance Attributes of a Modern, Effective Classification System

The GS classification system is a mechanism for organizing federal white- collar work—notably for the purpose of determining pay—based on a  position’s duties, responsibilities, and difficulty, among other things. We and others have found that the work of the federal government has  become more highly skilled and specialized than the GS classification  system was designed to address when it was created in 1949 when most  of the federal workforce was engaged in clerical work. Among other things, we found effective performance management helps  agencies establish a clear “line of sight” between individual performance  and organizational success and using core competencies helps to  reinforce organizational objectives. Opportunities Exist to Address Human Resources Capacity Challenges

In 2014, we found that many agency CHCO said their offices did not have  the capacity to lead strategic human capital management activities such  as talent management, workforce planning, and promoting high  performance and a results-oriented culture. Instead, these offices  remained focused on transactional human resource activities like benefits  and processing personnel actions. The human resources specialist occupation continues to be one of six  government-wide, mission-critical skills gap areas identified by OPM. The federal compensation system should allow the  government to cost-effectively attract, motivate, and retain a high- performing, agile workforce necessary to meet those missions.
Why GAO Did This Study

A careful consideration of federal pay is an essential part of fiscal stewardship and is necessary to support the recruitment and retention of a talented, agile, and high-performing federal workforce. High-performing organizations have found that the life-cycle of human capital management activities—including workforce planning, recruitment, on-boarding, compensation, engagement, succession planning, and retirement programs—need to be aligned for the cost-effective achievement of an organization's mission. However, despite some improvements, strategic human capital management—and more specifically, skills gaps in mission critical occupations—continues to be a GAO high-risk area.
This testimony is based on a body of GAO work primarily issued between June 2012 and March 2017. It focuses on (1) lessons learned in creating a more market driven, results-oriented approach to federal pay, and (2) opportunities, in addition to pay and benefits, that OPM and agencies could use to be more competitive in the labor market and address skills gaps.

What GAO Found

GAO's prior work has shown that implementing a market-based and more performance-oriented federal pay system is both doable and desirable, and should be part of a broader strategy of change management and performance improvement initiatives. In 2005, GAO identified the following key themes that highlight the leadership and management strategies high-performing organizations collectively considered in designing and managing a pay system that is performance oriented, affordable, and sustainable. Specifically, they:
1. Focus on a set of values and objectives to guide the pay system.
2. Examine the value of employees' total compensation to remain competitive in the labor market.
3. Build in safeguards to enhance the transparency and ensure the fairness of pay decisions.
4. Devolve decision-making on pay to appropriate levels.
5. Provide clear and consistent communication so that employees at all levels can understand how compensation reforms are implemented.
6. Build consensus to gain ownership and acceptance for pay reforms.
7. Monitor and refine the implementation of the pay system.
While the federal compensation system may need to be re-examined, Congress has already provided agencies with tools and flexibilities to build and maintain a high-performing workforce. They include, for example:
Hiring process
GAO reported in 2016 that the Office of Personnel Management (OPM) and selected agencies had not evaluated the effectiveness of hiring authorities. By evaluating them, of which over 100 were used in 2014, OPM and agencies could identify ways to expand access to those found to be more effective, and eliminate those found to be less effective.
General Schedule (GS) classification system
The federal government has become more highly skilled and specialized than the GS classification system was designed to address at its inception in 1949. OPM and stakeholders should examine ways to make the classification system consistent with attributes GAO identified of a modern, effective classification system, such as internal and external equity.
Performance management
Credible and effective performance management systems are a strategic tool to achieve organizational results. These systems should emphasize “a line a sight” between individual performance and organizational success, and use core competencies to reinforce organizational objectives, among other things.
Human resources capacity
The human resources specialist occupation is a mission critical skills gap area. Chief Human Capital Officers have reported that human resources specialists do not have the skills to lead strategic human capital management activities. Strengthening this capacity could help agencies better meet their missions.

What GAO Recommends

Over the years, GAO has made recommendations to agencies and OPM to improve their strategic human capital management efforts. OPM and agencies generally concurred. This testimony discusses actions taken to implement key recommendations to improve federal hiring and classification.