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Agencies in Managing Their Workforces' which was released on December 
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Report to Congressional Requesters:



December 2002:



Human Capital:



Effective Use of Flexibilities Can Assist Agencies in Managing Their 

Workforces:



GAO-03-2:



GAO Highlights: 



Human Capital:



Effective Use of Flexibilities Can Assist Agencies in Managing Their 

Workforces:



Highlights of GAO-03-2, a report to the Senate Committee on 

Governmental 

Affairs and to its Subcommittees on International Security, 

Proliferation, 

and Federal Services and on Oversight of Government Management, 

Restructuring, 

and the District of Columbia:



Why GAO Did This Study:



An essential element to acquiring, developing, and retaining high-

quality 

federal employees is agencies’ effective use of human capital 

flexibilities.

These flexibilities represent the policies and practices that an 

agency has 

the authority to implement in managing its workforce.



Congressional requesters asked GAO to provide information on 

agency and 

union officials’ views about the most effective human capital 

flexibilities, 

additional flexibilities needed, and whether additional 

flexibilities 

could be implemented while also protecting employees’ rights. 

GAO was also 

asked to identify key practices for effective use of 

flexibilities. 



GAO interviewed the human resources directors of the federal 

government’s 

24 largest departments and agencies, and representatives of 

4 national 

organizations representing federal employees and managers. 

GAO further 

focused its efforts on 7 federal agencies—Department of the 

Air Force, 

General Services Administration, Internal Revenue Service, 

International 

Trade Administration, U.S. Mint, State Department, and Veterans 

Benefits 

Administration—interviewing more than 200 managers, supervisors, 

human 

resources officials, and union representatives in headquarters 

and field 

locations.



What GAO Found: 



Agency and union officials’ views on human capital 

flexibilities.  



Most effective flexibilities. Existing flexibilities that are 

most 

effective in managing the workforce are work-life programs, 

such as 

alternative work schedules, child care assistance, and transit 

subsidies; 

monetary recruitment and retention incentives, such as 

recruitment 

bonuses and retention allowances; special hiring authorities, 

such as 

student employment and outstanding scholar programs; and 

incentive awards 

for notable job performance and contributions, such as cash 

and time-off 

awards.



Additional flexibilities needed. Additional flexibilities 

that would be 

helpful in managing the workforce include more flexible pay 

approaches 

to compensate federal employees, greater flexibility to 

streamline and 

improve the federal hiring process, increased flexibility 

in addressing 

employees’ poor job performance, additional workforce 

restructuring options, 

and expanded flexibility in acquiring and retaining temporary 

employees.



Protection of employee rights. Managers, supervisors, and 

human resources 

officials generally believed that additional human capital 

flexibilities 

could be implemented in their agencies while also 

protecting employees’ 

rights.  Union representatives, however, gave mixed views 

ranging from 

the opinion that additional flexibilities could be 

implemented while 

still protecting employee rights to concerns that managers 

would abuse 

their authority. 



Key practices for effective use of human capital 

flexibilities. 

GAO identified six key practices for the effective use 

of human capital 

flexibilities.  These practices are (1) planning 

strategically and 

making targeted investments, (2) ensuring stakeholder 

input in developing 

policies and procedures, (3) educating managers and 

employees on the 

availability and use of flexibilities, (4) streamlining 

administrative 

processes, (5) building transparency and accountability 

into the system, 

and (6) changing the organizational culture.



The insufficient and ineffective use of flexibilities 

can significantly 

hinder the ability of federal agencies to recruit, hire, 

retain, and 

manage their human capital.  Congress recently debated 

the extent of 

personnel flexibilities that should be granted to the new 

Department of 

Homeland Security.  While this decision was important to 

how the 

department will operate, how personnel flexibilities are 

implemented is 

equally important.



The full report, including GAO’s objectives, scope, 

methodology, and 

analysis is available at www.gao.gov/cgi-bin/getrpt?GAO-03-2.

For 

additional information about the report, contact J. 

Christopher Mihm at 

(202) 512-6806 or by e-mail at mihmj@gao.gov.



Contents:



Letter:



Results in Brief:



Background:



Agency Officials and Union Representatives Cited Most Effective Human 

Capital Flexibilities:



Agency Officials and Union Representatives Cited Need for Additional 

Human Capital Flexibilities:



Agency Officials Believed That Additional Flexibilities Could Coexist 

with Protection of Employee Rights, but Union Representatives Gave 

Mixed Views:



Key Practices Can Assist Agencies in Effectively Using Flexibilities:



Conclusions:



Agency Comments and Our Evaluation:



Appendixes:



Appendix I: Objectives, Scope, and Methodology:



Appendix II: Comments from the Office Personnel Management:



Appendix III: Comments from the Internal Revenue Service:



Appendix IV: Comments from the U.S. Mint:



Appendix V: Comments from the International Trade Administration:



Appendix VI: GAO Contacts and Staff Acknowledgments:



Tables:



Table 1: Human Capital Flexibilities That Agency Officials and Union 

Representatives Cited as Most Effective:



Table 2: Air Force CPMIS Funding Strategy for 3Rs (Fiscal Years 2004 

through 2009):



Figures:



Figure 1: Key Practices for Effective Use of Human Capital 
Flexibilities:



Figure 2: Background Information on the Seven Selected Agencies with 

Examples of Exemptions from Title 5 Personnel Requirements:



Abbreviations:



AFMC: Air Force Materiel Command:



CPDF: Central Personnel Data File:



CPMIS: Civilian Personnel Management Improvement Strategy:



GS: General Schedule:



GSA: General Services Administration:



IRM: Information Resource Management:



IRS: Internal Revenue Service:



ITA: International Trade Administration:



MSPB: Merit Systems Protection Board:



NAPA: National Academy of Public Administration:



OMB: Office of Management and Budget:



OPM: Office of Personnel Management:



PBO: performance-based organization:



PBS: Public Buildings Service:



QSI: quality step increase:



SQA: superior qualifications appointment:



VA: Department of Veterans Affairs:



VBA: Veterans Benefits Administration:



VEOA: Veterans Employment Opportunities Act:



VRA: Veterans Readjustment Appointment:



Letter:



December 6, 2002:



The Honorable Joseph I. Lieberman

Chairman

The Honorable Fred Thompson

Ranking Minority Member

Committee on Governmental Affairs

United States Senate:



The Honorable Daniel K. Akaka

Chairman

The Honorable Thad Cochran

Ranking Minority Member

Subcommittee on International Security,

 Proliferation, and Federal Services

Committee on Governmental Affairs

United States Senate:



The Honorable Richard J. Durbin

Chairman

The Honorable George V. Voinovich

Ranking Minority Member

Subcommittee on Oversight of Government

 Management, Restructuring, and the 

 District of Columbia

Committee on Governmental Affairs

United States Senate:



For years, many observers have viewed the federal civil service as 

over-regulated and inflexible. At the same time, federal agencies are 

experiencing pervasive human capital challenges in acquiring and 

developing staffs to meet current and emerging agency needs. These 

types of challenges are likely to go unresolved if agencies do not take 

steps to ensure that they have sufficient numbers of people in place 

with the right skills, tools, and incentives to get the job done right. 

To deal with these challenges, agencies need effective human capital 

flexibilities to assist them. The recent deliberations over human 

capital flexibilities for the new Department of Homeland Security 

underscore the importance of ensuring that agencies have the 

capabilities needed to effectively achieve their missions and manage 

their people.



In broad terms, human capital flexibilities represent the policies and 

practices that an agency has the authority to implement in managing its 

workforce to accomplish its mission and achieve its goals. These 

flexibilities can include actions related to areas such as recruitment, 

retention, compensation, position classification, incentive awards and 

recognition, training and development, performance management and 

appraisals, realignment and reorganization, and work arrangements and 

work-life policies. The tailored use of such flexibilities for 

acquiring, developing, and retaining talent is an important cornerstone 

of our model of strategic human capital management, which we recently 

released to assist in transforming agencies so they become more 

results-oriented, integrated, and externally focused.[Footnote 1]



In previous reports and testimonies,[Footnote 2] we have emphasized 

that in addressing their human capital challenges, federal agencies 

should first identify and use the flexibilities already available under 

existing laws and regulations and then seek additional flexibilities 

only when necessary and based on sound business cases. In this regard, 

as agreed with your offices, this report provides information on:



* agency officials’ and union representatives’ views on (1) the most 

effective flexibilities for managing their workforces, (2) additional 

flexibilities that would be the most helpful in managing their 

workforces, and (3) whether employee rights could be protected if 

additional flexibilities were authorized and implemented within 

agencies and:



* key practices that agencies should implement for effective use of 

human capital flexibilities, along with specific examples of such 

practices from selected agencies.



We were also asked to identify actions that the Office of Personnel 

Management (OPM) could take to facilitate the effective use of human 

capital flexibilities throughout the federal government. We will be 

discussing that issue in a separate report to be issued soon.



To address these issues, we reviewed relevant reports and interviewed 

cognizant officials from OPM, the Merit Systems Protection Board 

(MSPB), and the National Academy of Public Administration (NAPA). In 

addition, we interviewed the human resources directors of the federal 

government’s 24 largest departments and agencies and representatives 

from four national organizations representing federal employees and 

managers. As agreed, we further focused our review on seven federal 

agencies: the Department of the Air Force, General Services 

Administration (GSA), Internal Revenue Service (IRS), International 

Trade Administration (ITA), U.S. Mint (Mint), Department of State 

(State), and Veterans Benefits Administration (VBA). At the 

headquarters and various field locations of the seven agencies, we 

collected documents on their use of human capital flexibilities and 

interviewed over 200 managers and supervisors, human resources 

officials, and union representatives. We selected the seven agencies 

for various reasons, including their variety of existing human capital 

challenges and their range in usage of available human capital 

flexibilities. Our agency selection process was not designed to 

identify examples that could be considered representative of all the 

human capital flexibilities used at the seven agencies reviewed or the 

federal government as a whole. We conducted our review in accordance 

with generally accepted government auditing standards. (See app. I for 

additional information on our objectives, scope, and methodology.):



Results in Brief:



According to the agency officials and union representatives we 

interviewed, work-life policies and programs, such as alternative and 

flexible work schedules, transit subsidies, child care assistance, and 

employee assistance programs, are among the most effective human 

capital flexibilities available in federal agencies for managing the 

workforce to achieve agency missions and accomplish agency goals. These 

flexibilities are effective because they serve as important recruitment 

and retention tools as employees weigh the balance between their work 

life and leisure time. In addition, agency and union officials 

frequently cited the effectiveness of monetary recruitment and 

retention incentives, including recruitment and relocation bonuses for 

hard-to-fill positions; special hiring authorities, such as student 

employment and outstanding scholar programs; and incentive awards to 

employees for superior job performance and specific accomplishments, 

including cash and time-off awards.



Although agencies’ first priority should be to improve their human 

capital management by using the authorities already available to them, 

we identified five categories of additional human capital flexibilities 

that agency officials and union representatives cited as most helpful 

if authorized for their agencies. These additional authorities include 

(1) more flexible pay approaches, (2) greater flexibility to streamline 

and improve the federal hiring process, (3) increased flexibility in 

addressing employees’ poor job performance, (4) additional workforce 

restructuring options, and (5) expanded flexibility in acquiring and 

retaining temporary employees. These suggestions by agency officials 

and union representatives provide a starting point for executive branch 

decision makers and Congress to consider as they seek to reform federal 

human capital policies and practices. Key aspects of these additional 

authorities are included in various legislative initiatives under 

consideration by Congress. In other cases, however, additional analysis 

may be needed to ensure that any new authorities are granted and 

implemented consistent with a focus on program results, merit, and 

other important federal employment goals.



The agency managers and supervisors and human resources officials we 

interviewed generally agreed that additional human capital 

flexibilities could be authorized and implemented in their agencies 

while also ensuring protection of employees’ rights. Union 

representatives, however, expressed a variety of opinions on the 

ability of agencies to protect employee rights. Some believed that 

employee rights could be protected with additional managerial 

flexibility, while others were concerned that managers would abuse 

their authority and agency leaders would not take appropriate 

disciplinary action. According to agency and union officials, one of 

the most effective ways to ensure protection of employees’ rights when 

implementing these flexibilities is to make certain that supervisors 

and employees are fully aware of the available flexibilities, the 

procedures to use them, and the associated rights and responsibilities 

of both managers and employees when using them. In addition, they 

frequently mentioned the importance of securing the assistance and 

support of agency human resources officials in implementing and 

monitoring the use of flexibilities within the agency.



Based on our interviews with human resources directors from across the 

federal government and our previous human capital work, we identified 

six key practices that agencies should implement to use human capital 

flexibilities effectively. Figure 1 identifies the practices and 

provides some examples from the seven federal agencies we reviewed.



Figure 1: Key Practices for Effective Use of Human Capital 

Flexibilities:



Plan strategically and make targeted investments. Agencies need to 

ensure that the use of flexibilities is part of an overall human 

capital strategy clearly linked to the program goals of the 

organization. Agencies also need a sound plan for how they will use and 

fund the authorities. For example, the Air Force developed a series of 

initiatives that use flexibilities to recruit and retain civilian 

employees with high technical skills. The initiatives are accompanied 

by both funding and legislative strategies designed to promote 

succession planning while ensuring the resultant workforce is cost-

effective.



Ensure stakeholder input in developing policies and procedures. Agency 

leaders, managers, employees, and employee unions must work together 

and in a constructive and cooperative manner to effectively implement 

any flexibility in order to reach agreement on the need for change, the 

direction and scope that change will take, and how progress will be 

assessed. For example, employees at the Mint’s San Francisco coin-

making plant (with assistance from the local union) were able to vote 

on various options for implementing an alternative work schedule for 

the facility. :



Educate managers and employees on the availability and use of 

flexibilities. Agencies’ human capital offices need to ensure that they 

have effective campaigns not only to inform managers of their personnel 

authorities, but also to explain the situations where the use of those 

authorities is appropriate. Agencies also need to inform employees 

about relevant policies and procedures and about employees’ rights 

related to the use of these authorities. For example, GSA in 

Philadelphia educates its supervisors on human capital flexibilities 

with its Human Resource Solutions Series training, which includes 

topics such as performance management, position classification, and 

staffing.



Streamline and improve administrative processes. Agencies should 

streamline administrative processes for using flexibilities and review 

self-imposed constraints that may be excessively process-oriented. For 

example, GSA automated its on-the-spot cash award process to allow 

supervisors to initiate these awards by accessing the agency’s intranet 

Web site rather than the previous process of completing a lengthy 

justification and sending the form to the personnel office for review.



Build transparency and accountability into the system. Agencies should 

delegate authority to use flexibilities to appropriate levels within 

the agency. Agencies must also develop clear and transparent guidelines 

for using flexibilities and then hold managers and supervisors 

accountable for their fair and effective use. For example, IRS 

developed guidelines for its managers to determine if a job applicant 

qualifies for a recruitment incentive, which helps to ensure fair and 

consistent application of such flexibilities. Agencies can also make 

public the extent to which the flexibilities are used and the results 

of the flexibilities. Finally, agencies’ use of flexibilities should, 

as appropriate, be subject to internal and external evaluations.



Change the organizational culture. Agencies need to address managers’ 

and supervisors’ concerns that employees will view the use of some 

flexibilities as unfair. Also, with appropriate accountability 

mechanisms in place, agencies can begin to foster an organizational 

culture that encourages managers to develop creative approaches and 

take appropriate risks. For example, IRS in Oakland hired a consultant 

to conduct training for managers that promotes creative thinking, 

empowerment for decision making, and prudent risk taking. The training 

course is an ongoing process with managers returning each year to 

ensure their continued comfort with and use of the principles covered 

in the training.



[End of figure]



Source: Interviews with human resources directors and prior GAO work.



Agency and union officials identified several significant reasons why 

agencies have not made greater use of the human capital flexibilities 

that are available to them. These reported barriers that have hampered 

agencies in maximizing their use of available flexibilities included 

agencies’ weak strategic human capital planning and inadequate funding 

for using these flexibilities given competing priorities; managers’ and 

supervisors’ lack of awareness and knowledge of the flexibilities; 

managers’ and supervisors’ belief that approval processes to use 

specific flexibilities are often burdensome and time-consuming; and 

managers’ and supervisors’ concerns that employees will view the use of 

various flexibilities as inherently unfair, particularly given the 

common belief that all employees must be treated essentially the same 

regardless of job performance and agency needs.



The insufficient and ineffective use of flexibilities can significantly 

hinder the ability of federal agencies to recruit, hire, retain, and 

manage their human capital. To deal with their human capital 

challenges, it is important for agencies to assess and determine which 

human capital flexibilities are the most appropriate and effective for 

managing their workforces. Congress recently debated the extent of 

personnel flexibilities that should be granted to the new Department of 

Homeland Security. While this decision was important to how the new 

department will operate, how personnel flexibilities are implemented is 

equally important. Thus, to ensure more effective use of any human 

capital flexibility, it is critical that all agencies (1) plan 

strategically and make targeted investments, (2) ensure stakeholder 

input in developing policies and procedures, (3) educate managers and 

employees on the availability and use of flexibilities, (4) streamline 

and improve administrative processes, (5) build transparency and 

accountability into their systems, and (6) change their organizational 

cultures. By more effectively using flexibilities, agencies would be in 

a better position to manage their workforces, assure accountability, 

and transform their cultures to address current and emerging demands.



OPM and six of the seven selected agencies provided comments on a draft 

of this report. The agencies either generally agreed with the 

information presented or did not express an overall opinion about the 

report. OPM was pleased that our report acknowledges the need for 

greater personnel flexibilities in cases where existing law constrains 

OPM in providing policies and programs to assist agencies in 

accomplishing their missions. However, OPM commented that authorizing 

additional legislative flexibilities to agencies on a case-by-case 

basis could create an unfair competitive advantage for certain 

agencies. OPM also stressed in its comments that agencies should use 

the outstanding scholar hiring program as a supplement to competitive 

examining and not use the program as a general approach to circumvent 

the standard competitive hiring process. IRS commented that its 

recently acquired statutory flexibilities were instrumental to 

achieving the agency’s transformation to a modern, business-like 

organization. The Department of Defense (Defense) and GSA suggested 

that our report more fully discuss the drawbacks of telecommuting. The 

Mint commented that the report provides an objective, balanced review 

and assessment of the issues surrounding the implementation of human 

capital flexibilities and noted that the report would serve as a useful 

tool for policymakers. ITA commented that the report thoroughly and 

comprehensively addresses the critical issue of the programs needed to 

manage the federal workforce and emphasized the need for the additional 

flexibilities mentioned in the report. The Department of Veterans 

Affairs (VA) agreed with the information presented in the report and 

provided no additional comments. State did not provide comments on this 

report. Where appropriate, we made changes to the report to address the 

comments we received.



Background:



Federal managers have complained for years about the rigid and 

elaborate procedures required for federal personnel administration, 

often expressing the need for more flexibility within a system that has 

traditionally been based on uniform rules. Reformers have long sought 

to decentralize the personnel system and simplify the rules, arguing 

that however well the system may have operated in the past, it is no 

longer suited to meet the needs of a changing and competitive world. In 

1983, for example, NAPA published a report critical of the excessive 

constraints on federal managers, including constraints on their human 

resources decisions.[Footnote 3] As part of the response to these 

criticisms, OPM decentralized and delegated many personnel decisions to 

the agencies and has encouraged agencies to use human capital 

flexibilities to help tailor their personnel approaches to accomplish 

their unique missions. Our strategic human capital model also advocates 

that agencies develop a tailored approach to their use of available 

flexibilities by taking advantage of those flexibilities that are 

appropriate for their particular organizations and their mission 

accomplishment.[Footnote 4] Because of this tailoring, the federal 

personnel system is becoming more varied, despite its often-cited 

characterization as a “single employer.”:



The trend toward increased flexibility has manifested itself a number 

of ways, including the efforts of some agencies to seek congressional 

approval to move away from the personnel provisions of Title 5 of the 

U.S. Code that have traditionally governed much of the federal 

government’s civil service system.[Footnote 5] As noted by OPM in a 

1998 report,[Footnote 6] federal agencies’ status relative to these 

Title 5 personnel requirements can be better understood by thinking of 

them on a continuum. On one end of the continuum are federal agencies 

that generally must follow Title 5 personnel requirements. These 

agencies do not have the authority, for example, to establish their own 

pay systems. On the other end of the continuum are federal agencies 

that have more flexibility in that they are exempt from many Title 5 

personnel requirements. For example, Congress provided the Tennessee 

Valley Authority and the Federal Reserve Board with broad authority to 

establish their own personnel systems and procedures. The movement in 

the direction of greater flexibility, in fact, has gained momentum to 

the extent that about half of federal civilian employees are now exempt 

from at least some of the personnel-related requirements of Title 5.



In addition to receiving congressional authorizations for exemptions 

from the personnel-related requirements of Title 5, other mechanisms 

are available to introduce human capital innovations and flexibilities 

within federal agencies. OPM has the authority to review and make 

changes to its existing regulations and guidance to provide agencies 

with additional flexibilities. Additionally, a federal agency can 

obtain authority from OPM to waive some existing federal human 

resources laws or regulations through a personnel demonstration 

project. The goal of these demonstration projects is to encourage 

experimentation in human resources management by allowing federal 

agencies to propose, develop, test, and evaluate changes to their own 

personnel systems. In some cases, Congress has allowed some agencies to 

adopt alternatives that have been tested and deemed successful. For 

example, more flexible pay approaches that were tested within the 

Department of the Navy’s China Lake (California) demonstration project 

in the early 1980s were eventually adopted by other federal agencies, 

such as the Department of Commerce’s National Institute of Standards 

and Technology.



Exemptions from Title 5 personnel requirements within our seven 

selected agencies help to illustrate the gradations of flexibility. 

IRS, for example, represents an agency with broad authority related to 

its human capital management. Efforts to reform IRS led to provisions 

under the IRS Restructuring and Reform Act of 1998, which gave the 

Secretary of the Treasury various pay and hiring flexibilities not 

otherwise available under Title 5, such as the authority to establish 

new systems for hiring and staffing, compensation, and performance 

management. State and ITA are examples of organizations in which some 

employees are not subject to Title 5, while the remainder of the 

organization is covered. In this case, Foreign Service employees at 

State and ITA are outside of Title 5. For the remaining four agencies 

we included in our review, the majority of their employees are covered 

under the personnel requirements of Title 5, with some limited 

exemptions. Air Force, for instance, has made use of flexibilities 

under the demonstration project authority and currently participates in 

two such demonstration projects, one involving laboratory personnel and 

another for the civilian acquisition workforce. In addition, several of 

our selected agencies, such as GSA and VBA, received additional 

flexibility through legislative authority to offer voluntary separation 

incentive payments, commonly known as buyouts, to help restructure 

their workforces. Figure 2 provides background information on the seven 

agencies along with a summary of some of their related exemptions from 

Title 5 personnel requirements.



Figure 2: Background Information on the Seven Selected Agencies with 

Examples of Exemptions from Title 5 Personnel Requirements:



Department of the Air Force: The mission of the Air Force, a component 

of the Department of Defense, is to defend the United States and 

protect its interests through aerospace power. The Air Force employs 

over 150,000 civilians in a full range of occupations. Although the 

majority of civilians employed by the Air Force are subject to Title 5 

requirements, Air Force Research Laboratory employees, for example, are 

involved in a demonstration project, which features a contribution-

based compensation system.



General Services Administration: GSA is one of three central management 

agencies in the federal government. The agency’s mission is to support 

federal employees wherever they work by, among other things, providing 

work space, furniture, equipment, supplies, tools, and travel services. 

GSA also oversees telecommuting centers and federal child care centers 

and preserves historic buildings. The agency employs approximately 

14,000 people, the majority of whom are covered by Title 5. Congress 

authorized GSA to offer voluntary separation incentive payments to help 

shape its workforce. :



Internal Revenue Service: IRS is a component of the Department of the 

Treasury. The agency’s mission is to provide America’s taxpayers with 

top quality service by helping them understand and meet their tax 

responsibilities and by applying the tax law with integrity and 

fairness to all. IRS employs approximately 100,000 full-time employees. 

Under the IRS Restructuring and Reform Act of 1998, the Secretary of 

the Treasury has pay and hiring flexibilities that are not generally 

available to Title 5 agencies. Some of these flexibilities are intended 

to allow IRS managers more discretion in rewarding good performers and 

in making employees accountable for their performance.



International Trade Administration: ITA is the lead unit for trade in 

the Department of Commerce. The agency promotes U.S. exports of 

manufactured goods, nonagricultural commodities, and services. It also 

participates in formulating and implementing U.S. foreign trade and 

economic policies and monitors market access and compliance of U.S. 

international trade agreements. ITA employs approximately 2,000 full-

time employees. About 300 of these employees are Foreign Service 

employees, who are not subject to Title 5.



U.S. Mint: The U.S. Mint is a bureau within the Department of the 

Treasury. The primary mission of the agency is to produce an adequate 

volume of circulating coinage for the nation to conduct its trade and 

commerce. The Mint’s workforce consists of approximately 2,600 

employees with a wide mix of white-collar and blue-collar occupations. 

Of these employees, the rates of basic pay for positions within the 

police forces of the U.S. Mint are fixed without regard to the pay 

provisions of Title 5, except for minimum and maximum rates. :



Department of State: State is the principal agency for advancing and 

protecting U.S. interests abroad by conducting U.S. foreign policy, and 

supporting and coordinating the activities of all other U.S. government 

agencies operating abroad. State has approximately 7,300 civil service 

employees and 9,400 Foreign Service employees. :



Veterans Benefits Administration: The mission of VBA--an agency within 

the Department of Veterans Affairs--in partnership with the Veterans 

Health Administration and the National Cemetery Administration, is to 

provide benefits and services to veterans and their families in a 

responsive, timely, and compassionate manner in recognition of their 

service to the nation. VBA employs approximately 13,000 employees, the 

majority of whom are under Title 5. Like GSA, the agency received 

special legislative authority to provide voluntary separation incentive 

payments to help shape its workforce. :



[End of figure]



Source: Agency Web sites and planning documents.



Even under current Title 5 personnel provisions and their applicable 

regulations, efforts to reform and improve the personnel system have 

provided many human capital flexibilities for agencies to use. Within 

broad parameters, such as adherence to merit system principles[Footnote 

7] and employee protection from prohibited personnel 

practices,[Footnote 8] these flexibilities offer the agencies effective 

ways to accomplish their missions while maintaining the key values of a 

centralized system. For example, agencies have many flexibilities 

available to help them restructure and realign their workforces. 

Moreover, agencies have numerous compensation flexibilities that 

authorize them to provide additional direct payments to support their 

recruitment, relocation, and retention efforts, although some of them 

may require the approval of OPM or the Office of Management and Budget 

(OMB).



Agency Officials and Union Representatives Cited Most Effective Human 

Capital Flexibilities:



Today, federal agencies are facing many human capital challenges. With 

the increasing numbers of employees retiring and the numbers of 

employees who will be eligible to retire in the near future, along with 

competition from private companies, federal agencies are in a struggle 

to recruit and retain highly skilled employees. In response to these 

challenges, agencies need to use the various human capital 

flexibilities that are available to them in managing their workforces 

to achieve agency missions and accomplish goals.



Our discussions with agency officials and union representatives 

revealed numerous human capital flexibilities that they deemed 

effective in managing their workforces. These flexibilities encompassed 

broad areas of personnel-related actions such as recruitment, 

retention, compensation, position classification, incentive awards and 

recognition, training and development, performance management and 

appraisals, realignment and reorganization, and work arrangements and 

work-life policies. On the basis of these discussions, we identified 

the flexibilities that were the most frequently cited by agency and 

union officials as being the most effective for managing their 

agencies’ workforces. These flexibilities include:



* work-life programs, such as alternative work schedules, child care 

assistance, and transit subsidies;



* monetary recruitment and retention incentives, including retention 

and relocation bonuses and retention allowances;



* special hiring authorities, such as student employment and 

outstanding scholar programs; and:



* incentive awards, which range from performance-based cash awards to 

time-off awards to symbolic items of nominal value, such as plaques and 

T-shirts.



Table 1 provides a summary of these flexibilities and the cited 

benefits of implementing them.



Table 1: Human Capital Flexibilities That Agency Officials and Union 

Representatives Cited as Most Effective:



Work-life policies and programs:.



Flexibility: Alternative work schedules; Cited benefits of flexibility: 

Work-life policies and programs:: * Increase employee morale; * Allow 

employees to be more flexible in accomplishing job responsibilities; * 

Decrease need for employees to use accumulated leave.



Flexibility: Employee assistance programs; Cited benefits of 

flexibility: Work-life policies and programs:: * Assist agencies in 

addressing personnel issues that might be affecting agency operations; 

* Help employees resolve problems that might be affecting personal 

health or job performance.



Flexibility: Child care centers and assistance; Cited benefits of 

flexibility: Work-life policies and programs:: * Help recruit skilled 

workers and retain valuable employees; * Can aid lower paid employees 

with assistance; * Increase productivity among users because centers 

often mean more reliable child care and fewer employee absences.



Flexibility: Subsidized transportation; Cited benefits of flexibility: 

Work-life policies and programs:: * Reduces congestion in 

transportation systems; * Decreases smog in local commuting areas; * 

Aids some employees in obtaining reliable transportation by subsidizing 

costs.



Flexibility: Telecommuting; Cited benefits of flexibility: Work-life 

policies and programs:: * Decreases employee stress and commuting 

costs; * Helps to reduce traffic congestion and smog; * Allows 

employees to be more productive by decreasing their commuting time.



Monetary recruitment and retention incentives:.



Flexibility: Superior/special qualification appointments; Cited 

benefits of flexibility: Work-life policies and programs:: * Allow 

agencies more control over entry-level salaries; * Permit agencies to 

match the prior salaries of new hires coming from the private sector; * 

Allow agencies to more easily hire employees with highly specialized 

skills in areas such as information technology and engineering.



Flexibility: Recruitment bonuses; Cited benefits of flexibility: Work-

life policies and programs:: * Assist agencies in recruiting employees 

for hard-to-fill positions; * Help agencies to retain employees for 

reasonable periods (i.e., written service agreement).



Flexibility: Relocation bonuses; Cited benefits of flexibility: Work-

life policies and programs:: * Assist agencies in relocating employees 

for hard-to-fill positions; * Help agencies to retain employees for 

reasonable periods (i.e., written service agreement).



Flexibility: Retention allowances; Cited benefits of flexibility: Work-

life policies and programs:: * Assist agencies in retaining employees 

who possess unusually high or unique qualifications or who fill 

essential needs for the agencies; * Allow agencies to terminate the 

incentive payments when no longer needed; * Can be provided on a group 

basis to help agencies retain groups or categories of employees.



Special hiring authorities:.



Flexibility: Student educational employment programs (i.e., “co-op” 

programs); Cited benefits of flexibility: Work-life policies and 

programs:: * Allow agencies and student employees to test whether the 

students would be suitable matches for possible permanent employment; * 

Allow agencies to quickly and easily hire needed staff who may be 

eligible for permanent positions with the agencies.



Flexibility: Outstanding scholar program; Cited benefits of 

flexibility: Work-life policies and programs:: * Allows agencies to 

quickly hire high-quality entry-level employees (i.e., college 

graduates with superior academic credentials) in certain occupations.



Flexibility: Veteran-related hiring authorities; Cited benefits of 

flexibility: Work-life policies and programs:: * Allow agencies to 

quickly hire needed talent; * Allow veterans to apply for positions not 

generally open to nonfederal employees.



Incentive awards:.



Flexibility: Performance-and accomplishment-based cash awards; Cited 

benefits of flexibility: Work-life policies and programs:: * Allow 

supervisors to recognize employees’ outstanding performance or 

accomplishment either at the end of performance appraisal periods or at 

a specific points in time for special acts or contributions; * Can 

provide supervisors with autonomy to offer awards.



Flexibility: Quality step increases; Cited benefits of flexibility: 

Work-life policies and programs:: * Allow agencies to provide permanent 

pay increases on the basis of outstanding performance as demonstrated 

in employees’ performance appraisals; * Do not require agencies to 

conduct an annual review and approval to continue payments, as do 

retention allowances.



Flexibility: Time-off awards; Cited benefits of flexibility: Work-life 

policies and programs:: * Allow employees to receive awards other than 

money; * Allow employees to take time off from work when most 

convenient for agencies and employees.



Flexibility: Group incentives (i.e., gainsharing and goalsharing); 

Cited benefits of flexibility: Work-life policies and programs:: * 

Allow both agencies and employees to benefit from increases in 

productivity and decreases in costs; * Allow both agencies and 

employees to benefit from the achievement of specified goals that 

enhance the success of the organization’s mission.



Flexibility: Honorary and informal recognition awards; Cited benefits 

of flexibility: Work-life policies and programs:: * Give supervisors 

maximum flexibility to be creative in how they recognize their 

employees.



Source: Agency and union officials interviewed.



[End of table]



Agency and Union Officials Cited Work-Life Programs among the Most 

Effective Flexibilities:



Agency officials and union representatives cited work-life programs 

among the most effective flexibilities for recruiting, motivating, and 

retaining staff. These programs are offered to help employees balance 

their work and family lives and include alternative work schedules, 

employee assistance programs, child care centers and assistance, 

transit subsidies, and telecommuting options. OPM has strongly 

supported the use of these family-friendly programs, indicating that 

they can help to attract and retain quality employees, boost morale, 

and reduce unscheduled leave. Our recent report looking at human 

capital challenges at the Securities and Exchange Commission revealed 

how agencies can sometimes overlook the effectiveness of these work-

life programs in recruiting, retaining, and motivating staff.[Footnote 

9] The following is additional information about the effectiveness of 

these work-life flexibilities.



Alternative work schedules. Federal agencies generally have the 

authority to determine the hours of work for their employees to ensure 

that agencies meet organizational goals. Agencies may establish hours 

of work and scheduling flexibilities to replace the traditional 

schedules of 8 hours per day and 40 hours per week, such as full-time 

and part-time, overtime hours, and flexible work schedules. Scheduling 

flexibilities, such as alternative work schedules, were among the 

effective flexibilities most cited by agency managers and supervisors, 

human resources officials, and union representatives. Although some 

supervisors told us that such schedules can be a challenge to manage, 

these supervisors stated that this scheduling flexibility increases 

employee morale, strongly motivates employees, and allows employees to 

be more flexible in accomplishing job responsibilities. For example, 

IRS officials told us that the agency has made use of alternative work 

schedules since the early 1980s and that this flexibility is attractive 

to both current and potential employees. Supervisors at the San 

Francisco Mint said that the use of alternative work schedules reduces 

the amount of accumulated leave taken because employees can accomplish 

personal errands and tasks on their days off. According to human 

resources officials in GSA’s San Francisco region, about 1,300 of the 

region’s 1,500 employees make use of alternative work schedules.



Employee assistance programs. Through these programs, agencies can 

provide a range of free, confidential counseling and referral services 

to assist employees who may be experiencing personal problems affecting 

their job performance or personal health. Agency and union officials 

said that these programs can be valuable in helping employees deal with 

issues such as work and family pressures. IRS supervisors in 

Philadelphia told us, for example, that IRS’s employee assistance 

program offers employees and their family members a way to address both 

work-related and nonwork-related issues and that the employees they had 

referred to the program had found the services to be quite beneficial. 

Officials at Langley Air Force Base told us that both civilian and 

military personnel use the agency’s employee assistance programs, which 

were designed to meet the needs of various employee groups.



Child development centers and child care assistance. Many federal 

agencies provide on-site or near-site child development centers to help 

employees with child care needs. Civilian federal agencies recently 

obtained authority through federal statute to use appropriated funds 

from salaries and expenses to assist their lower income employees with 

the cost of child care.[Footnote 10] Agencies can also assist their 

employees with information about other organizations that can help 

employees locate quality child care services. At some of the field 

locations we visited, agencies provided on-site or near-site child care 

for their employees. Agency and union officials said that this 

assistance greatly aids employees in focusing on their job 

responsibilities by providing more reliable child care, and that 

reliable child care often results in fewer employee absences. A 

national union representative pointed out that child care subsidies 

have allowed agencies to retain employees and save money because they 

do not have to train new staff members. According to OPM, there are 

approximately 1,000 work-site child care centers sponsored by civilian 

and military agencies in the federal government.



Transportation subsidies. In April 2000, an executive order was signed 

that required all federal agencies to implement a transportation fringe 

benefit program for their employees.[Footnote 11] This transit subsidy 

program was designed to encourage federal employees to use mass 

transportation for commuting to and from work to reduce traffic 

congestion and air pollution. Federal agencies in the national capital 

region were required to implement a “transit pass” program by providing 

eligible employees with subsidies in the form of subway farecards. 

Agencies generally have the flexibility to make this program available 

to their employees nationwide and can provide employees with transit 

passes of up to $100 per month for each employee who uses public or 

vanpool transportation. Many supervisors and union representatives we 

interviewed said that this transit subsidy is highly valued by 

employees. Officials in the San Francisco Bay Area made particular note 

of the benefits of using public transportation given the traffic 

congestion in the area.



Telecommuting Cited as Beneficial in Certain Cases, but Some Doubted 

Its Effectiveness and Stressed the Need for Careful Management:



While many agency managers and supervisors, human resources officials, 

and union representatives supported the effectiveness of work-life 

programs, our discussions of telecommuting with these officials brought 

about strongly mixed opinions. Telecommuting, also referred to as 

telework or flexiplace, involves work arrangements that allow an 

employee to work away from the traditional work site, either at home or 

at another approved location. Often cited potential benefits for 

agencies to establish telecommuting programs include improved 

recruiting and retention of employees, increased productivity, and a 

reduced need for office space. Cited reasons for employees to 

participate in such programs include the opportunity to reduce 

commuting time; lowered personal costs in areas such as transportation, 

parking, food, and wardrobe; and improvement in the quality of work-

life and morale because they are able to balance work and family 

demands. An MSPB survey conducted in 2000 found that 47 percent of 

federal employees considered telecommuting important to them personally 

and that 20 percent had it available to them.[Footnote 12]



Several managers and supervisors we interviewed, however, said that 

telecommuting has not been shown to increase employee productivity, and 

that it is often complicated to manage an employee who is working “out 

of sight.” According to these agency officials, in many cases it is 

more difficult to judge the quality of the employee’s work in a 

telecommuting environment, while in other cases the quality of the work 

can decline if the employee is not mature in using this flexibility. In 

addition, with telecommuting, the office often loses some sense of 

teamwork and continuity, and sometimes significant logistical obstacles 

must be overcome. Further, telecommuting is not practical for all 

occupations or situations. Yet, other agency managers and numerous 

union representatives said that telecommuting can be an effective 

flexibility if used appropriately. Union representatives at GSA in 

Philadelphia, for example, said that agency managers should focus on 

employee productivity and results rather than the need to simply 

observe the employee working. These views mirror those found in our 

1997 report reviewing the use of telecommuting (i.e., flexiplace) in 

the federal government.[Footnote 13] During that review, agency 

officials and union representatives we interviewed cited management 

resistance as the largest barrier to implementing flexiplace programs. 

Agency officials had informed us that they had had some success in 

overcoming management resistance by training supervisors or by exposing 

them to telecommuting arrangements. At the request of the Chairman, 

Subcommittee on Technology and Procurement Policy, House Committee on 

Government Reform, we are undertaking an assessment of federal 

telecommuting policies and programs.



Agency and Union Officials Identified Monetary Recruitment and 

Retention Incentives as Highly Effective Flexibilities:



Agency and union officials also cited monetary recruitment and 

retention incentives as highly effective in managing their agencies’ 

workforces. Agencies generally offer these types of monetary incentives 

to employees based on employee qualifications, special needs of the 

agencies, or difficulties in filling positions. These flexibilities 

include the following.



Superior/special qualifications appointments. Using this flexibility, 

agencies can set base pay for newly appointed individuals above step 1 

of the various grade levels based on the superior qualifications or 

highly specialized skills of the candidates or special needs of the 

agency. Agency officials said that this flexibility was especially 

effective because it allows agencies more control over entry-level 

salaries and permits agencies to match the prior salaries of new hires 

coming from the private sector. For example, IRS supervisors in Oakland 

told us that this hiring flexibility had helped their office in 

matching salaries of employees hired from the dot-com industry. GSA 

human resources officials in San Francisco said that this appointment 

authority had greatly assisted their office in hiring about 30 

employees over the last 3 years. Officials from the Mint’s headquarters 

information technology office said this pay incentive had helped in 

hiring highly skilled information security personnel at the GS-13 and 

GS-14 levels.[Footnote 14]



Recruitment bonuses. A recruitment bonus is a lump-sum payment of up to 

25 percent of basic pay that an agency may pay to an employee newly 

appointed to a position that would otherwise be difficult to fill. In 

return, the employee must sign an agreement to fulfill at least 6 

months of service with the agency. A senior human resources manager at 

one department, for example, told us that her department had instituted 

over 1,000 recruitment bonuses (averaging about $5,000 each) to attract 

new hires. She said that the department typically hired new employees 

only at the GS-7 level and thus relied on these recruitment bonuses to 

augment starting pay, particularly for hard-to-fill scientific and 

technical positions.



Relocation bonuses. A relocation bonus is a lump-sum payment of up to 

25 percent of basic pay that an agency may pay to a current employee 

who must relocate to a position in a different commuting area that 

would otherwise be difficult to fill. In return, the employee must sign 

a service agreement with the agency. Another senior human resources 

manager, for example, told us that his agency uses relocation bonuses 

to assist certain employees who are required to move every 3 years to 

limit potential conflicts of interest in their sensitive positions. He 

said that without the relocation bonus, these employees would often 

lose money when they move, resulting in significant morale problems.



Retention allowances. A retention allowance is a continuing (i.e., 

biweekly) payment of up to 25 percent of basic pay that an agency may 

pay to help retain an employee. The agency must determine that (1) the 

unusually high or unique qualifications of the employee or a special 

need of the agency for the employee’s services makes it essential to 

retain the employee and (2) the employee would be likely to leave the 

federal government in the absence of a retention allowance. In 

addition, an agency may offer retention allowances to a group or 

category of employees.[Footnote 15] Agencies must annually review and 

certify the allowances, which allows the agencies to terminate the 

incentive payments when no longer deemed necessary. One senior human 

resources manager told us, for example, that her department often uses 

retention allowances to help retain certain specialized employees who 

are frequently approached by recruiters from private industry and state 

governments.



Agencies Can Use Retention Allowances to Build Employee Competencies:



Although agencies generally use retention allowances to retain highly 

qualified employees, State also uses this flexibility to build employee 

competencies. In 1998, when planning for its information technology 

requirements, State determined that it needed to address the difficulty 

of attracting and keeping the highly qualified technical workforce 

necessary to carry out its mission of providing support and 

coordinating the activities of all U.S. government agencies abroad. As 

such, it implemented a technology skills development program to attract 

and retain employees with certain technological skills by granting them 

retention allowances for obtaining job-related degrees and 

certifications. Under the program, State also paid for training courses 

leading up to certification but not the examinations to obtain the 

credentials.[Footnote 16]



According to State, it has granted over $4 million in total retention 

allowances under this skills development program. The number of 

information technology employees with degrees or certifications 

increased from 133 in 1999 to 583 in 2001. As part of its evaluation of 

the skills development program, State surveyed the participants and 

supervisors involved in the program. Approximately 61 percent of the 

employees who participated in the program (335 out of 547) responded to 

the 2001 survey. The 2001 survey showed that 80 percent of the 

responding participants agreed that receiving the retention allowance 

played a substantial role in their decision to work at the department, 

and 90 percent agreed that receiving the allowance played a substantial 

role in their decision to remain at the department.



Special Hiring Authorities Were Also Noted to be Particularly Effective 

Flexibilities:



Agency and union representatives frequently noted that special hiring 

authorities available to federal agencies can also be particularly 

effective in assisting agencies to appoint needed employees. These 

hiring authorities allow agencies to hire employees without going 

through the standard federal hiring process, often resulting, according 

to managers, in shorter hiring times, less onerous paperwork, and more 

flexibility in selecting the job candidates who managers believe are 

most qualified. These special hiring flexibilities include the 

following.



Student educational employment program. The student employment program 

allows agencies to appoint graduate, undergraduate, vocational, 

technical, associate degree, and professional degree seeking students 

who are enrolled or have been accepted for enrollment in at least a 

part-time schedule at an accredited institution. Some of these student 

employees are eligible to receive tuition assistance and, upon 

completion of their academic work, may be eligible for conversion to 

permanent jobs with the agency. A senior human resources manager at one 

department said that the student employment program allows agencies to 

develop professional relationships with students while they are still 

in school, which makes it easier to hire them when they are looking for 

permanent employment. GSA officials said they had hired 110 students 

under this program in the last 3 years and noted that the agency has 

done well at retaining these employees after they completed their 

academic work. Air Force officials told us that given the agency’s 

downsizing environment of the past decade, the Air Force had only 

recently reestablished its student employment program but that the 

program has been successful in bringing in new employees who, thus far, 

tend to stay with the agency.



Outstanding scholar program. The outstanding scholar program 

supplements the standard competitive hiring process by allowing 

agencies to hire outstanding college graduates[Footnote 17] for certain 

entry-level occupations at grades GS-5 and GS-7. Agency officials we 

interviewed said that because agencies using the program are not 

required to rate and rank candidates for these positions, the hiring 

process can be shortened. For example, supervisors at GSA in 

Philadelphia told us that outstanding scholar hiring authority is 

beneficial because it allows the agency to hire more quickly. Although 

these and other agency officials strongly supported the use of this 

program, concerns have been raised by some about the degree of 

discretion this program provides in allowing agencies to circumvent the 

standard competitive hiring process. For example, in a January 2000 

report, MSPB noted that the hiring authority under the outstanding 

scholar program was originally intended to be used as a short-term 

supplemental hiring tool.[Footnote 18] The program was established in 

1981 in response to a civil lawsuit challenging the federal 

government’s use of a written test for entry-level professional and 

administrative jobs because of that test’s adverse impact on African-

Americans and Hispanics.[Footnote 19] Although the program is aimed at 

addressing underrepresentation of African Americans and Hispanics, the 

program has never been restricted to those designated minority groups. 

In its report, MSPB recommended that this hiring authority be abolished 

and that merit-based hiring be restored to this group of federal jobs. 

In its comments on a draft of our report, OPM cautioned that although 

some agency officials we interviewed may have viewed this program as 

providing broad authority to use noncompetitive hiring procedures, 

agencies are to use this program only as a supplement to competitive 

examining. OPM stressed that agencies must have an established pattern 

of competitive selection into the covered occupations before agencies 

can use the program.



Veteran-related hiring authorities. During our review, several agency 

and union officials also noted the benefits of two veteran-focused 

hiring authorities. Veterans Readjustment Appointment (VRA) authority 

allows agencies to noncompetitively appoint eligible veterans to 

otherwise competitive positions at any grade level through GS-11 or 

equivalent. After the veteran completes 2 years of satisfactory 

service, the employing agency must then noncompetitively convert this 

VRA appointee to permanent status in the competitive federal service. 

Veterans Employment Opportunities Act (VEOA) authority allows agencies 

to obtain a wider pool of job applicants by permitting agencies to 

accept job applications from eligible veterans for certain positions 

that would typically be open only to individuals with competitive 

status. Veterans who submit job applications under this VEOA authority 

could then be selected for the positions under standard competitive 

procedures. Supervisors of wage-grade employees at GSA’s Philadelphia 

region said, for example, that using VRA authority had been effective 

in assisting the region in quickly hiring highly qualified veterans. 

GSA human resources officials in San Francisco told us that VEOA had 

been effective in facilitating the hire of 24 veterans over the last 

year.



Incentive Awards Were Also Cited as Effective Flexibilities:



Agency and union officials also frequently mentioned the effectiveness 

of granting incentive awards to employees. The intent of the incentive 

awards program is to provide appropriate motivation and recognition for 

excellence in job performance and contributions to an agency’s goals. 

Incentive awards, which can be either monetary or nonmonetary, include 

the following.



* Performance awards are lump-sum cash awards that reward employees for 

fully successful or better job performance as defined by formal 

performance appraisals. Awards can be up to 10 percent of an employee’s 

basic pay, or up to 20 percent for exceptional job performance.



* Special act or service awards are lump-sum cash awards for specific 

accomplishments that contribute to the efficiency, economy, or other 

improvement of government operations. Agencies may grant up to $10,000 

without external approval, up to $25,000 with OPM approval, and in 

excess of $25,000 with Presidential approval.[Footnote 20]



* Quality step increases (QSI) are permanent pay increases for 

outstanding performance as shown on formal job performance appraisals. 

QSIs are granted by providing employees with faster than normal 

progression through the stepped rates of GS.



* Time-off awards are awards that grant employees time off from duty 

without charging their annual leave or requiring that they forgo pay. 

These awards allow employees to take time off from work when it is most 

convenient for both the agencies and the employees.



* Group incentives include cash awards granted to employees based on 

(1) increases in productivity or decreases in costs (i.e., gainsharing) 

or (2) achievement of specified goals that enhance the success of the 

organization’s mission (i.e., goalsharing). These incentives are 

designed to foster teamwork and promote innovation and continuous 

improvement.



* Honorary and informal recognition awards are awards such as trophies, 

plaques, certificates, and other tangible incentives. These awards give 

supervisors maximum flexibility to be creative in how they recognize 

employees.



Agency and union officials provided us with numerous examples of their 

use of incentive awards as effective flexibilities. For example:



* Officials at GSA said that GSA had used its awards program 

effectively to recognize and motivate employees and that the agency had 

delegated approval for authorizing awards to appropriate levels within 

the agency. GSA’s fast-track awards program, for example, allows 

managers and supervisors to log onto GSA’s intranet system and complete 

the administrative work for the award within minutes.



* At VBA in Philadelphia, supervisors noted that offering movie tickets 

and restaurant coupons to employees was a good way to show appreciation 

for employees’ performance and contributions.



* U.S. Mint officials said that they reward and recognize employees 

through on-the-spot awards, time-off awards, and gainsharing. At the 

Mint in San Francisco, managers mentioned that they have used employee 

recognition day to boost morale by providing awards that are of nominal 

monetary value but that are symbolically significant, such as T-shirts.



* State’s Information Resource Management (IRM) Bureau officials said 

that their quarterly awards process allows supervisors to recognize and 

reward employees in a more timely fashion, rather than waiting until 

the annual job performance appraisal process.



* IRS managers in Philadelphia mentioned that the agency provides data 

conversion employees with incentive pay tied to quality and production, 

noting that this award has helped to motivate these employees to 

accomplish their job tasks more quickly and accurately.



Agency Officials and Union Representatives Cited Need for Additional 

Human Capital Flexibilities:



We identified five categories of additional flexibilities that agency 

officials and union representatives cited most often as being 

potentially helpful in managing their workforces if additional 

flexibilities were authorized for agencies. Specifically, these 

categories include:



* more flexible pay approaches,



* greater flexibility to streamline and improve the federal hiring 

process,



* increased flexibility in addressing employees’ poor job performance,



* additional workforce restructuring options, and:



* expanded flexibility in acquiring and retaining temporary employees.



These suggestions by agency officials and union representatives provide 

a starting point for executive branch decision makers and Congress to 

consider as they seek to reform federal human capital policies and 

practices. Although we have not analyzed the validity of the 

suggestions, the categories are consistent with the authorities that we 

have established at GAO and have been urging for other federal 

agencies. The GAO Personnel Act of 1980 and our 2000 legislation 

included some of the proposed additional flexibilities. The most 

prominent change in human capital management that we implemented as a 

result of the GAO Personnel Act of 1980 was a broadbanded[Footnote 21] 

pay-for-performance system that bases employee compensation primarily 

on the knowledge, skills, and performance of individual employees. It 

provides managers flexibility to assign and use employees in a manner 

that is more suitable to multitasking and the full use of staff. 

Importantly, careful design and effective implementation is crucial to 

obtaining the benefits of broadbanding in an equitable and cost-

effective manner. Also, as a result of the 1980 Act, the Comptroller 

General has the authority to hire, on a noncompetitive basis, up to 15 

experts and consultants at any level, including senior executives, with 

renewable terms up to 3 years each. GAO has used this authority in 

selected cases and found it to be valuable in filling critical time-

sensitive positions within the agency.



Our October 2000 legislation gave us additional tools to realign our 

workforce in light of mission needs and overall budgetary constraints; 

to correct skills imbalances; and to reduce high-grade, managerial, or 

supervisory positions without reducing the overall number of employees. 

To address any or all of these three situations, we were given 

authority to offer voluntary early retirement and voluntary separation 

incentive payments to our employees until December 31, 2003. This 

legislation also allowed us to create a technical and scientific career 

track at a compensation level comparable to senior career executives 

and to give greater consideration to performance and employee skills 

and knowledge in any reduction-in-force actions.



Aspects of these authorities were also included in the recently enacted 

Homeland Security Act of 2002,[Footnote 22] which created the new 

Department of Homeland Security. In addition to providing the President 

with additional authority to create new policies for managing the 

workforce within the new department, the legislation includes 

provisions that authorize agencies across the federal government to use 

additional personnel flexibilities. For example, agencies will now be 

permitted to offer buyouts to their employees without the requirement 

to reduce their overall number of employees. This change will provide 

agencies the opportunity to more easily restructure their workforces to 

correct skills imbalances related to those employees whose jobs have 

become obsolete or whose skills are no longer needed. The legislation 

also permits agencies to use a more flexible approach in the rating and 

ranking of job candidates during the hiring and staffing process. Using 

this alternative approach can expand the number of qualified candidates 

that a selecting official could choose from when filling a position. In 

addition, under the legislation agencies will need to incorporate 

workforce planning into their strategic plans and appoint “chief human 

capital officers” to oversee workforce management.



Additional analysis may be needed to ensure that any new personnel 

authorities that are granted and implemented are consistent with a 

focus on results, merit, and other important federal employment goals. 

As we have noted in previous reports and testimonies,[Footnote 23] 

comprehensive legislative reform of the civil service will likely be 

necessary to address the federal government’s human capital challenges; 

however, the consensus necessary to make this a reality has yet to be 

achieved. Such reform could provide a broader range of federal agencies 

with a more standard set of human capital tools and flexibilities to 

manage their workforces. Ultimately, in undertaking any civil service 

reform, policymakers will likely want to consider the potential needs 

of individual agencies along with the governmentwide need to manage 

competition between agencies for skilled employees.



Agency Officials Believed That Additional Flexibilities Could Coexist 

with Protection of Employee Rights, but Union Representatives Gave 

Mixed Views:



Because human capital flexibilities entail greater decentralization and 

delegation of human capital authorities and fewer rules, the protection 

of employees’ rights under these conditions can be challenging. The 

managers and supervisors and human resources officials we interviewed 

generally believed that additional human capital flexibilities could be 

authorized and implemented in their agencies while also ensuring 

protection of employees’ rights. Union representatives we interviewed, 

on the other hand, had mixed views on the ability of agencies to 

protect employee rights with the increased discretion that additional 

flexibilities would give to agency managers. Some union representatives 

responded positively when asked if agencies could give managers 

additional flexibilities while protecting employees’ rights. Several 

union officials, however, said that managers could more easily abuse 

their authority when implementing these additional flexibilities and 

that agency leaders often do not take appropriate actions in dealing 

with abusive managers.



According to the agency and union officials we interviewed, one of the 

most effective ways to ensure protection of employees’ rights when 

implementing these flexibilities is making certain that supervisors and 

employees are fully aware of the available flexibilities, the 

procedures to use them, and the associated rights and responsibilities 

of both managers and employees when using them. Clear guidelines for 

consistently applying the flexibilities and straightforward 

explanations from managers about how and why they made decisions are 

essential, according to some of the individuals we interviewed. The 

consensus of agency officials, with some union representatives 

agreeing, was that putting personnel authority in the hands of agency 

managers through human capital flexibilities will not affect employee 

protection as long as managers are held directly accountable for their 

personnel decisions.



In our previous work, we recognized the importance of involving 

employee unions when agencies propose major changes in the work 

environment that may be of particular concern to the unions.[Footnote 

24] We found that obtaining union cooperation and support through 

effective labor-management relations can help achieve consensus on the 

planned changes, avoid misunderstandings, and more expeditiously 

resolve problems that occur. When agencies and employee unions 

maintained an ongoing working relationship in an environment of trust 

and openness, agencies and unions were able to work cooperatively even 

in the face of significant change. For example, both IRS and the 

National Treasury Employees Union officials credited the excellent 

working relationship they developed over the last decade for helping 

the reorganization of IRS. One IRS official, for example, stated that 

it is important to involve the union as a part of the discussions about 

flexibilities because the union is sometimes more effective than agency 

managers in communicating with employees.



Agency managers and supervisors also cited the importance of securing a 

close working relationship with the agency’s human resources officials 

in the protection of employee rights. Officials commented that human 

resources officials are often good sources of information about 

flexibilities and effective monitors of potential problems involving 

their use. According to several supervisors we interviewed, this 

assistance and monitoring by human resources officials, along with 

managers’ and union representatives’ efforts to keep each other honest, 

help to ensure that employee protection can coexist with the use of 

human capital flexibilities.



Key Practices Can Assist Agencies in Effectively Using Flexibilities:



Based on our interviews with human resources directors across the 

federal government and our related human capital work, we identified 

six key practices that agencies can implement for effectively using 

human capital flexibilities. These practices are (1) planning 

strategically and making targeted investments, (2) ensuring stakeholder 

input in developing policies and procedures, (3) educating managers and 

employees on the availability and use of flexibilities, (4) 

streamlining and improving administrative processes, (5) building 

transparency and accountability into the system, and (6) changing the 

organizational culture.[Footnote 25] We confirmed the importance of 

these practices in our discussions with managers and supervisors, human 

resources officials, and local union representatives at the seven 

agencies we selected for more detailed review. We also identified 

relevant examples of the use of these key practices from the seven 

agencies. The following is a more detailed discussion of these 

practices along with examples we identified.



Planning Strategically and Making Targeted Investments:



With strong commitment on the part of their leadership, federal 

agencies need to ensure that the use of human capital flexibilities is 

part of an overall human capital strategy clearly linked to the program 

goals of the organization. Agencies need to plan for how they will use 

and fund these authorities, what results they expect to achieve, and 

what methods they will use to evaluate actual results. Our review found 

that a significant reason why managers and supervisors had not made 

greater and more effective use of existing human capital flexibilities 

was agencies’ weak strategic human capital planning and inadequate 

funding for using these flexibilities given competing priorities. Such 

a strategic focus would allow for answering critical questions such as 

whether current staff and resources are sufficient; whether they are 

being allocated in a manner best suited to promote mission 

accomplishment; and, ultimately, whether agencies and Congress may wish 

to consider a variety of targeted investments or new human capital 

flexibilities in the future. The following are elements and examples of 

planning strategically and making targeted investments from the seven 

agencies we reviewed.



* Obtain agency leadership commitment. Top leadership commitment is 

crucial to instilling a common vision across the organization and 

creating an environment that is receptive to innovation. In earlier 

reports and testimonies, we observed that top leadership plays a 

critical role in creating and sustaining high-performance 

organizations.[Footnote 26] We also highlight the importance of top 

leadership commitment in our recently issued model of strategic human 

capital management, in which we note that political leaders and senior 

career executives demonstrate this commitment by personally developing 

and directing reform, driving continual improvement, and characterizing 

the agency’s mission in reform initiatives.[Footnote 27] At IRS, for 

example, Commissioner Rossotti’s efforts demonstrated a clear case of 

leadership’s commitment to change. As mandated by Congress in the IRS 

Restructuring and Reform Act, the Commissioner articulated a new 

mission for the agency, together with support for strategic goals that 

balance customer service and compliance with tax laws. The Commissioner 

led a modernization effort that touched virtually every aspect of IRS, 

including implementation of IRS’s newly authorized personnel system and 

the additional human capital flexibilities that accompanied it.



* Determine agency workforce needs using fact-based analysis. Federal 

agencies often have not gathered and analyzed the data required to 

effectively assess how well their human capital approaches have 

supported results. High-performing organizations identify their 

current and future human capital needs, including the appropriate 

number of employees; the key competencies for mission accomplishment; 

and the appropriate deployment of staff across the organization. For 

example, in 1998 the Air Force Materiel Command (AFMC), the largest 

employer of civilians in the Air Force, began a two-phased workforce 

study designed to tailor its human capital to meet future business 

needs. AFMC’s planning efforts, as documented in its April 2000 study 

called Sustaining the Sword, involved an assessment of the current and 

projected 2005 workforce by workforce mix, skills, skill levels, and 

demographics and then a more detailed position-level analysis of 

workforce data from AFMC locations. AFMC reported that these data and 

the results of its workforce shaping activities led to a more informed 

understanding of workforce gaps, for which corrective strategies could 

be then developed.



* Develop strategies that employ appropriate flexibilities to meet 

workforce needs. After identifying current and future workforce needs, 

agencies ought to develop effective strategies that fill the gaps. In 

developing these strategies, agencies should assess which human capital 

flexibilities might work best given current and future needs. For 

example, in 2000 the Mint created a “human resources flexibilities 

team” to assess the agency’s current and future use of existing human 

capital flexibilities. This initial assessment, as outlined in a 

December 2000 report, revealed that the Mint had pursued a number of 

key flexibilities but had not done so uniformly across its 

organizational, occupational, and grade-level structures. In its 

report, the Mint assessed over 80 disparate human capital flexibilities 

and developed specific plans to use each of the flexibilities that had 

not been used or that required immediate attention for full use.



* Make appropriate funding available. After developing strategies, 

agencies need to assess the associated costs of using any human capital 

flexibilities as part of these strategies. Such assessments will allow 

agencies to better plan for the use of these flexibilities and to 

ensure that appropriate funding is available when needed. Air Force, 

for example, developed a comprehensive, multiyear funding plan to 

implement its Civilian Personnel Management Improvement Strategy 

(CPMIS), which comprises 28 separate human capital initiatives grouped 

into the areas of accession planning, workforce development, retention/

separation management, and support activities. Under accession 

planning, for instance, one initiative calls for the Air Force to 

expand its use of the “3Rs”--recruitment bonuses, relocation bonuses, 

and retention allowances--to sustain necessary skills in the civilian 

workforce. Beginning in fiscal year 2004, the Air Force projects 

offering approximately 1,300 recruitment bonuses annually at an average 

cost of $11, 250, approximately 650 relocation bonuses at an average 

cost of $10,000, and approximately 650 retention allowances at an 

average cost of $9,000. (See table 2.):



Table 2: Air Force CPMIS Funding Strategy for 3Rs (Fiscal Years 2004 

through 2009):



Human capital flexibility: Recruitment bonuses (1,300); Proposed 

funding by fiscal year (dollars in millions): 2004: $14.6; Proposed 

funding by fiscal year (dollars in millions): 2005: $15.5; Proposed 

funding by fiscal year (dollars in millions): 2006: $16.4; Proposed 

funding by fiscal year (dollars in millions): 2007: $17.3; Proposed 

funding by fiscal year (dollars in millions): 2008: $18.3; Proposed 

funding by fiscal year (dollars in millions): 2009: $19.3.



Human capital flexibility: Relocation bonuses (650); Proposed funding 

by fiscal year (dollars in millions): 2004: 6.5; Proposed funding by 

fiscal year (dollars in millions): 2005: 6.7; Proposed funding by 

fiscal year (dollars in millions): 2006: 6.8; Proposed funding by 

fiscal year (dollars in millions): 2007: 7.0; Proposed funding by 

fiscal year (dollars in millions): 2008: 7.2; Proposed funding by 

fiscal year (dollars in millions): 2009: 7.4.



Human capital flexibility: Retention allowances (650); Proposed funding 

by fiscal year (dollars in millions): 2004: 5.9; Proposed funding by 

fiscal year (dollars in millions): 2005: 6.0; Proposed funding by 

fiscal year (dollars in millions): 2006: 6.2; Proposed funding by 

fiscal year (dollars in millions): 2007: $6.4; Proposed funding by 

fiscal year (dollars in millions): 2008: 6.6; Proposed funding by 

fiscal year (dollars in millions): 2009: 6.8.



Source: Air Force.



[End of table]



Ensuring Stakeholder Input in Developing Policies and Procedures:



Agency leaders, managers, employees, and employee unions need to work 

together to identify and effectively implement human capital 

flexibilities. Engaging all of the stakeholders in developing policies 

and procedures for the use of flexibilities helps in reaching agreement 

on the need for change, the direction and scope that change will take, 

and how progress will be assessed. Stakeholder input should also be 

used to ensure that the policies surrounding the use of flexibilities 

are clear and the procedures to implement them are uncomplicated. The 

following are elements and examples from our seven selected agencies on 

how they ensured stakeholder input in developing human capital 

flexibility policies and procedures.



* Engage the human capital office. Because flexibilities influence the 

entire human capital system, human capital professionals are needed to 

supply the energy and expertise in helping to develop policies and 

procedures on the use of flexibilities. As noted in our model of 

strategic human capital management, this assistance requires the 

expansion of the role of human capital professionals from largely 

paperwork processors to functioning as advisors to and partners with 

senior leadership and managers. By transforming from focusing largely 

on transactions to more on total customer service, the role of the 

human capital office in facilitating the use of flexibilities will 

become increasingly important. GSA’s Philadelphia regional office, for 

example, established a Human Resources Council, which is composed of 

the human resources director and representatives of various GSA 

offices, to discuss human capital policies and practices in the region, 

such as alternative work arrangements and incentive awards. In another 

example, State’s IRM Bureau directly involved human capital 

professionals in its working group that crafted its skills development 

program to provide retention allowances (ranging from 5 to 15 percent) 

to certain information technology workers who obtain job-related 

degrees and certifications.



* Engage agency managers and supervisors. Soliciting the input of 

managers and supervisors on how best to implement human capital 

flexibilities is a key component for their successful use. Because 

managers and supervisors are virtually certain to be negatively 

affected by unclear policies and procedures, their perspectives on how 

to make strategic use of flexibilities, while avoiding potential 

problems caused by poor implementation, are essential. To address the 

potential problems of limited input, for example, 160 frontline 

managers from GSA’s central and regional offices convened in four 

sessions in March 2001 to exchange information about effective 

workforce-related practices using many of the flexibilities already 

available to the agency. This effort resulted in a catalog of “best 

practices” that their offices had implemented in the areas of 

recruiting and orienting employees, engaging existing employees, and 

developing leaders.



* Involve employees and unions. As with any significant change in the 

workplace, involving employees and unions in decisions to use human 

capital flexibilities increases employees’ understanding and 

acceptance of the objectives for implementing change, helps to avoid 

misunderstandings, and can assist in more expeditiously resolving 

problems that might occur.[Footnote 28] While frontline employees can 

help ensure a more operationally oriented perspective on the use of 

flexibilities, obtaining union cooperation and support through 

effective labor-management relations can help achieve consensus on the 

changes accompanying their use. For example, the Mint and VBA made 

changes to employee work schedules based on input from employees in 

open forums. At a “town hall” meeting at the Mint’s San Francisco coin-

making plant, employees (with assistance from the local union) were 

able to vote on various options for implementing an alternative work 

schedule for the facility. At a “listening post” session at VBA’s 

regional office in Philadelphia, employees offered input to change the 

operating hours of the facility’s phone operations.



* Use input to establish clear, documented, and transparent policies 

and procedures. After obtaining sufficient input from key players, 

agencies need to develop and implement human capital flexibilities 

using clear, documented, and transparent policies and procedures. This 

practice is essential to ensuring that they are used fairly and, at the 

same time, are not encumbered with so many administrative burdens that 

they lose their value as flexibilities. Agencies can take various steps 

to ensure that policies and procedures are clear and uncomplicated. For 

example, the Mint’s Office of Chief Financial Officer hired a writer-

editor to assist the agency in writing personnel-related policies and 

procedures in “plain English.” As an example of developing 

uncomplicated policies and procedures, GSA officials provided us with a 

merit promotion plan that had been reduced from 75 to 5 pages.



Educating Managers and Employees on Availability and Use of 

Flexibilities:



Agencies need to ensure that they have an effective campaign not only 

to inform agency managers and employees of their personnel authorities, 

but also to explain the situations where the use of those authorities 

is appropriate. Our work at the seven agencies showed that the lack of 

awareness and knowledge of human capital flexibilities was one of the 

most significant reasons why federal managers and supervisors have not 

made better use of these flexibilities. In some cases, senior managers 

might not know that such flexibilities were already available to their 

agencies. In other cases, agency leaders or parent departments might 

place restrictions on the use of a flexibility--either strategically or 

haphazardly--and then not communicate the source and reasons for such 

restrictions to line managers and supervisors within the agency. 

Educating managers and employees goes a long way in ensuring effective 

use of these flexibilities across the federal government. The following 

are elements and examples of how agencies educated managers and 

employees on the availability and use of human capital flexibilities.



* Train human capital staff. Traditionally, what has been called the 

personnel or human resources function has often been viewed as strictly 

a support function involved in administering personnel processes and 

ensuring compliance with rules and regulations. As human capital 

professionals take a more consultative approach to their jobs, they 

will need not only the knowledge of and expertise in the full range of 

human capital flexibilities available but also skills on communicating 

this information to their clients in the agencies they serve. For 

example, GSA held a conference in September 2000 for its human 

resources staff members to increase their knowledge of emerging human 

capital issues and to better their skills in responding to the needs of 

clients throughout the agency. According to a senior human resources 

manager at GSA, the conference included a presentation and discussion 

of the human capital flexibilities available for use within the agency.



* Educate agency managers and supervisors on existence and use of 

flexibilities. Ultimately the flexibilities within the personnel system 

are only beneficial if the managers and supervisors who would carry 

them out are actually aware of their existence and of the best manner 

in which they could be used. Educating managers and supervisors is key 

to ensuring that agencies use all of the tools and flexibilities needed 

to manage their workforces to accomplish agency missions and achieve 

goals. For example, AFMC developed and distributed a Supervisor’s Guide 

to Work Force Planning to educate agency managers and supervisors on 

numerous flexibilities available to attract and retain quality 

employees. GSA’s Philadelphia office has educated its supervisors on 

human capital flexibilities with its “Human Resources Solutions Series” 

training, which includes topics such as employee leave and work 

schedules, options for dealing with performance and conduct problems, 

and balancing managerial flexibility and accountability under merit 

system principles.



* Inform employees of procedures and rights. In previous work, we have 

highlighted the importance of informing employees of personnel-related 

policies and procedures and their rights under them.[Footnote 29] This 

communication helps in minimizing employee confusion and apprehension 

and ensuring that flexibilities are implemented fairly within and 

across the organization. Agencies can use a variety of methods to 

communicate this information. For example, GSA’s human resources 

manager in Philadelphia said that most updates concerning employee 

rights and procedures are communicated via GSA’s intranet Web site. The 

office also distributes an employee newsletter with information about 

related personnel policies and procedures.



Streamlining and Improving Administrative Processes:



Agencies also need to streamline and improve administrative processes 

for using flexibilities and review self-imposed constraints that may be 

excessively process oriented. Indeed, our interviews with agency 

managers and supervisors revealed that they viewed burdensome and time-

consuming approval processes as a significant reason why they did not 

make better use of available human capital flexibilities. Although 

sufficient controls are important to ensure consistency and fairness in 

using flexibilities, agency officials should look for instances in 

which processes can be reengineered. This reengineering of processes 

for using flexibilities can assist the agencies in increasing 

efficiencies, decreasing costs, or both. In this effort, agency 

managers need to bear in mind that they should first determine 

requirements and design processes before developing any information 

systems to support the new processes. The following are elements and 

examples of how the agencies streamlined and improved administrative 

processes.



* Ascertain the source of existing requirements. As we have previously 

reported, some of the barriers to effective strategic human capital 

management in the federal government do not stem from law or regulation 

but are self-imposed by agencies.[Footnote 30] The source of these 

barriers can sometimes be a lack of understanding of the prerogatives 

that agencies have. For example, the head of State’s office responsible 

for overseas building operations asked OMB in May 2001 for a series of 

increased flexibilities to accomplish various personnel management 

goals. In its response, OMB noted that the department already had the 

authority to implement many of these requested changes. In another 

example, personnel policy at the Mint had required that job vacancy 

announcements for certain positions be publicly posted for at least 30 

calendar days. OPM, however, generally allows agencies the flexibility 

to post such announcements for as few as 5 business days.[Footnote 31] 

Mint officials told us that the Mint’s parent agency, the Department of 

the Treasury, had initially established this 30-day posting requirement 

and that the Mint’s original policy had been drafted to concur with 

Treasury’s. After Mint officials realized that this 30-day requirement 

flowed from its parent department, the Mint was able to work to modify 

the policy to require a minimum of only 5 business days for posting 

these job announcements.



* Reevaluate administrative approval processes for greater efficiency. 

In our interviews at the selected agencies, some managers and 

supervisors complained about the lack of time to initiate and implement 

the justification and approval processes that agencies have in place to 

use existing flexibilities. If senior managers within the agency want 

supervisors to use these flexibilities, supervisors must view the 

required initiation and approval processes worth their time compared to 

the expected benefit to be gained in using the flexibility. In 

simplifying processes to provide for greater efficiencies and improved 

quality and responsiveness, agencies have often turned to automation of 

paper-based personnel processes and procedures. For example, managers 

and supervisors at GSA’s Philadelphia office cited the agency’s 

recently automated processes for granting employees on-the-spot cash 

awards (ranging from $50 to $2,000). Previously, agency supervisors 

were required to complete lengthy justifications and send these forms 

to the personnel office for review. According to the human resources 

manager, the perceived burdens of the previous administrative process 

led to very few awards being granted. Now, according to GSA managers 

and supervisors, by accessing GSA’s intranet Web site, an agency 

supervisor can complete the award initiation process within minutes and 

on the next business day receive a certificate to present to the 

employee that shows what the award is for and when the employee can 

expect the money in his or her paycheck.



* Replicate proven successes of others. When developing processes and 

procedures for using flexibilities, agencies can potentially learn 

valuable lessons from other agency components or from other 

organizations altogether. These lessons learned could be instructive in 

developing ways to best implement such flexibilities along with 

determining which flexibilities are most effective. For example, 

officials at VBA’s Oakland office informed the agency’s Philadelphia 

office of the success they had in using the student cooperative program 

to recruit needed staff members for the office. This special hiring 

authority, called the Student Career Experience Program, allows 

agencies to appoint students who are enrolled or have been accepted for 

enrollment at least part-time at accredited institutions. After 

completing their academic requirements, these employees can then be 

converted noncompetitively to term or permanent positions within 120 

days.



Building Transparency and Accountability into the System:



To ensure effective use of human capital flexibilities, agencies need 

to delegate authority to use these flexibilities to appropriate levels 

within the agency, and then agency managers and supervisors need to be 

held accountable--both for achieving results and for treating employees 

fairly. Agency managers and supervisors are more likely to support 

changes when they have the necessary authority and flexibility--along 

with commensurate accountability and incentives--to advance the 

agency’s goals and improve performance. Indeed, devolving decision-

making authority to program managers in combination with holding them 

accountable for results is one of the most powerful incentives for 

encouraging results-oriented management. However, achieving a proper 

balance between managerial flexibility and adequate controls to ensure 

consistency and accountability can be a challenging endeavor. Moreover, 

agencies that expect their managers and employees to take greater 

responsibility and be held accountable for results must ensure that the 

managers and employees have the training and tools they need to fulfill 

these expectations. The following are elements and examples from the 

agencies we reviewed of how they built transparency and accountability 

into their human capital systems.



* Delegate authority to use flexibilities to appropriate levels within 

the agency. In a recent report, we found that only about one-third of 

agency managers we surveyed from 28 agencies believed that they had, to 

a great or very great extent, the authority they needed to help 

accomplish agency goals.[Footnote 32] Providing managers and 

supervisors with such authority gives those who know the most about an 

agency’s programs the power to make those programs work. This 

delegation of authority is equally important when implementing human 

capital flexibilities. For example, the Department of the Treasury 

delegated authority to IRS and its other bureaus to establish their own 

policies on superior qualifications appointments (SQA), a flexibility 

that allows agencies to hire individuals at advanced rates of pay based 

on the individuals’ superior qualifications or special needs of the 

agencies. To expedite timely approval in hiring situations, IRS in turn 

redelegated this approval authority for SQAs to the human resources 

officers within each of the agency’s business units. In another 

example, VBA in Philadelphia delegated authority to immediate 

supervisors to approve on-the-spot monetary awards for their employees 

without review by senior managers. VBA supervisors said that under this 

delegated authority they simply complete a short form and present it to 

the employee, who can then proceed to the on-site credit union and 

receive cash, all within 1 hour.



* Hold managers and supervisors directly accountable. Agencies must 

develop clear and transparent guidelines for using flexibilities and 

then hold managers and supervisors accountable for their fair and 

effective use. Managers need to be held accountable for their 

contributions to results and recognized and rewarded for those 

contributions. Internal and external parties, such as agency human 

resources offices, offices of inspectors general, and OPM, can help to 

ensure transparency in the use of flexibilities through appropriate 

review and oversight. For example, according to the senior human 

resources official at GSA’s Philadelphia regional office, the human 

resources office monitors supervisors’ granting of employee awards to 

ensure that supervisors are effectively using this flexibility. This 

list of award amounts and frequencies (without personal identifiers) 

can be provided to supervisors within the region so that they know how 

their use of such flexibilities compares with that of other regional 

supervisors.



* Apply policies and procedures consistently. While recognizing 

differences in each individual’s job performance and competencies, 

supervisors need to make concerted efforts to apply policies and 

procedures for using flexibilities consistently. Our review at the 

seven agencies showed that a significant reason why supervisors have 

not made greater use of flexibilities is supervisors’ fears that some 

employees will view the use of various flexibilities as somehow unfair. 

The consistent application of policies and procedures helps to lessen 

employee fears because decision-making criteria are well defined, 

documented, transparent, and applied the same way in similar 

situations. For example, after some concerns expressed by newly hired 

IRS employees about possible inconsistencies, the agency developed 

guidelines for its managers to use in determining if a job applicant 

qualifies for a recruitment bonus. According to IRS officials, these 

guidelines helped to ensure consistent application of recruitment 

bonuses based on the specific backgrounds of new employees.



Changing the Organizational Culture:



Organizational culture represents the underlying assumptions, beliefs, 

values, attitudes, and expectations generally shared by an 

organization’s members. Because an organization’s beliefs and values 

affect the behavior of its members, changing the organizational culture 

related to outdated personnel-related approaches is crucial to 

effectively using human capital flexibilities. Changing this culture is 

important particularly in areas related to ensuring the involvement of 

senior human capital managers in key decision-making processes and 

decreasing managers’ and supervisors’ resistance to change. Agencies 

also need to address managers’ and supervisors’ concerns that employees 

will view the use of flexibilities as inherently unfair, and the belief 

that all employees must be treated essentially the same regardless of 

job performance and agency needs. By addressing such organizational 

culture issues, agencies can better assist managers and staffs in 

developing creative ways to employ tools and flexibilities to address 

human capital challenges. The following are elements and examples from 

the seven agencies we reviewed of practices they implemented to change 

their organizational cultures.



* Ensure involvement of senior human capital managers in key decision-

making processes. A fundamental reorientation is required to ensure 

that human capital leaders take a “seat at the table” as full members 

of the top management team rather than isolating them to provide after-

the-fact support. By expanding the strategic role of human capital 

officials beyond providing traditional personnel administration 

services, agencies are in a better position to integrate human capital 

considerations when identifying the mission, strategic goals, and core 

values of the organization as well as when designing and implementing 

policies and procedures. The senior human capital manager at IRS, for 

instance, has been heavily involved in the agency’s recent 

restructuring initiative as well as its overall strategic direction. 

Recognizing the importance of this strategic role, he also recently 

devolved the agency’s human resources office into three units; two are 

strategically focused and the third is transaction focused.



* Encourage greater acceptance of prudent risk taking and 

organizational change. Managers and supervisors need to have an 

appropriate attitude toward risk taking and proceed with new operations 

after carefully analyzing the risks involved and determining how they 

may be minimized or mitigated. Managers and supervisors will at times 

resist making changes because they would have to work in new and 

unfamiliar ways. Although managers and supervisors can initially be 

uncomfortable exercising newly delegated authorities, they will often 

gain confidence as they better understand their importance and become 

more experienced in exercising them. For example, IRS’s regional office 

in Oakland hired a consultant to conduct training for managers that 

promotes creative thinking, empowerment for decision making, and 

prudent risk taking. The training course is an ongoing process with 

managers returning each year to ensure their continued comfort with and 

use of principles covered in the training. In another example, 

according to a senior human resources official in State, managers in 

the department’s Office of Logistics Management were initially hesitant 

to allow the use of alternative work schedules for employees in that 

office but finally accepted use of the flexibility when they realized 

that it would not drastically affect the office’s operations.



* Recognize differences in individual job performance and competencies. 

In previous work looking at the practices of private sector 

organizations regularly cited as leaders in the area of human capital, 

common principles of human capital management we identified include the 

importance of recognizing differences in employees’ job performance and 

competencies.[Footnote 33] Rather than follow the federal government’s 

traditional approach of compensating federal employees strictly based 

on their status at a particular grade level, agencies should look at 

using performance management systems, including pay and other 

meaningful incentives, to more clearly recognize individual job 

performance as well as employee competencies. In an example of 

recognizing differences in individual job performance, GSA’s Public 

Buildings Service (PBS) created a performance measurement and incentive 

awards system for its regional offices and its employees in its 

“Linking Budget to Performance” initiative. Under this initiative, each 

of PBS’s 11 regional offices strives to achieve preestablished goals 

for nine standard performance measures. On the basis of each region’s 

performance, monetary incentives can be provided based on employees’ 

contribution to the region’s accomplishments. Furthermore, an example 

of recognizing differences in employee competencies is demonstrated 

with State’s use of retention allowances for employees who obtain job-

related degrees and certifications in the information technology field.



Conclusions:



The insufficient and ineffective use of flexibilities can significantly 

hinder the ability of federal agencies to recruit, hire, retain, and 

manage their human capital. To deal with their human capital 

challenges, it is important for agencies to assess and determine which 

human capital flexibilities are the most appropriate and effective for 

managing their workforces. On the basis of our review at seven selected 

agencies, the most effective flexibilities cited were work-life 

policies and programs, monetary recruitment and retention incentives, 

special hiring authorities, and employee incentive awards. Our review 

at the seven selected agencies also found several categories of 

additional flexibilities that agency and union officials cited as being 

potentially helpful in managing their workforces. If such additional 

flexibilities are desired, agencies should develop business cases to 

justify the need for the authority to implement these additional 

flexibilities. Although comprehensive civil service reform will likely 

be necessary to address the federal government’s human capital 

challenges, agencies need not wait in seeking additional flexibilities 

where clear business cases have been established.



The appropriate and effective use of flexibilities is essential to 

ensuring that employees’ rights are protected, agencies adhere to merit 

system principles, and employees are shielded from prohibited personnel 

practices. To ensure the most effective use of human capital 

flexibilities, it is important that agencies (1) plan strategically and 

make targeted investments, (2) ensure stakeholder input in developing 

policies and procedures, (3) educate managers and employees on the 

availability and use of flexibilities, (4) streamline and improve 

administrative processes, (5) build transparency and accountability 

into their systems, and (6) change their organizational cultures. By 

more effectively using flexibilities, agencies would be in a better 

position to manage their workforces, assure accountability, and 

transform their cultures to address current and emerging demands.



Agency Comments and Our Evaluation:



We provided a draft of this report on September 4, 2002, to the 

Director of OPM, the Secretary of Defense, the Commissioner of IRS, the 

Director of the U.S. Mint, the Secretary of Veterans Affairs, the 

Administrator of GSA, the Under Secretary for International Trade, and 

the Secretary of State. OPM, Defense, IRS, the Mint, VA, GSA, and ITA 

provided comments on the draft report. These agencies either generally 

agreed with the information presented or did not express an overall 

opinion about the report. In some cases these agencies provided written 

technical comments to clarify specific points regarding the information 

presented. Where appropriate, we have made changes to this report to 

reflect these technical comments. State did not provide comments on 

this report.



The following summarizes significant comments provided by the seven 

agencies.



* In her written comments (see app. II), the OPM Director noted that 

OPM was pleased that our report acknowledges the need for greater 

personnel flexibilities in cases where existing law constrains OPM in 

providing policies and programs to assist agencies in accomplishing 

their missions. In technical comments, OPM raised concerns, however, 

about our position that individual agencies could be authorized 

additional legislative flexibilities if they develop sound business 

cases that such flexibilities are needed. OPM stated that its 

obligation is to review and analyze all agencies’ requests to use 

additional flexibilities or create additional flexibilities to ensure 

that they promote the efficiency and effectiveness of the federal 

government and do not create an unfair competitive advantage for 

selected agencies. In this regard, OPM commented that it supports the 

need for a standardized approach to governmentwide flexibilities. As we 

noted in this report and in previous reports and testimonies, 

comprehensive legislative reform of the civil service will likely be 

necessary to address the federal government’s human capital challenges. 

We believe, however, that agencies need not wait in seeking additional 

flexibilities where clear business cases have been established for such 

flexibilities. It is possible that civil service reform could provide a 

broader range of agencies with a more standard set of human capital 

tools and flexibilities to manage their workforces. Ultimately, in 

addressing civil service reform, policymakers will likely want to 

consider the potential needs of individual agencies along with the 

governmentwide need to manage competition between agencies for skilled 

employees. We added a discussion of this issue to the report in the 

section dealing with agency and union officials’ views on authorizing 

additional flexibilities.



* In its technical comments, OPM also emphasized that the outstanding 

scholar hiring program can only be used as a supplement to competitive 

examining and should not be viewed as an “alternative” hiring 

authority. OPM expressed concern that we not recommend that agencies 

use this program for a purpose other than that for which it was 

intended. We noted in the draft report, however, that this program was 

intended to serve as a supplemental hiring tool. Our report states that 

many agency officials we interviewed viewed this program as effective 

because the program allows the agency to hire more quickly given that 

the agency does not have to rank and rate candidates as usually 

required under the standard competitive hiring process. Although OPM 

does not include the outstanding scholar program as an alternative 

hiring or staffing option in its Flexibilities Handbook, many of the 

agency officials we interviewed viewed this program as an effective 

flexibility, and the program meets the definition of human capital 

flexibility that we used in this report. Our report, however, does not 

recommend that agencies use this program to circumvent the standard 

examining process. As with many of the flexibilities available to 

agencies, the outstanding scholar program could be used in 

inappropriate or inefficient ways. As we note under key factors for 

effective use of flexibilities, agencies must build transparency and 

accountability into their human capital systems to ensure that managers 

and supervisors are held accountable for the fair and effective use of 

these flexibilities. In response to OPM’s concerns on this issue, we 

added additional language to the report to emphasize that this program 

is to be used as a supplement to competitive hiring and to note OPM’s 

statement that agencies must have an established pattern of competitive 

examining into the covered jobs before agencies can use this program.



* Defense’s comments, provided by E-mail through its Office of 

Inspector General, did not express an overall opinion about the report. 

However, the comments noted that it appeared we were asserting in the 

report that telecommuting had been clearly shown to increase employee 

productivity. We noted in the draft report that our discussions with 

agency and union officials about telecommuting brought about strongly 

mixed views, including its effect on employee productivity and the 

challenges of managing such a program. Still, we changed the text to 

clarify that some managers and supervisors told us that telecommuting 

has not been shown to increase employee productivity and that 

telecommuting is not practical for all occupations or situations.



* In written comments (see app. III), the IRS Commissioner stated that 

he generally agreed with the list of available human capital 

flexibilities that agency and union officials cited as most helpful for 

managing their workforces. Nonetheless, he said that these 

flexibilities may not be as important in the long run as some of the 

more deep-rooted changes to human capital management policies and 

practices that agencies like IRS have undertaken recently to improve 

their workforces’ performance and accountability. He noted that IRS’s 

recently acquired statutory flexibilities, such as a broadbanding pay 

system and an expedited and flexible hiring process, were instrumental 

to achieving the agency’s transformation to a modern, business-like 

organization. He stressed the importance of providing additional 

flexibilities to federal agencies so that they can manage their 

workforces in a manner comparable to the private sector.



* In written comments (see app. IV), the Mint’s Director stated that 

the report provides an objective, balanced review and assessment of the 

issues surrounding the implementation of human capital flexibilities. 

She commented that the report would serve as a useful tool that 

policymakers could use to guide federal agencies seeking to employ 

greater flexibilities to manage their workforces.



* VA provided comments by E-mail through its GAO liaison. VA agreed 

with the information presented and had no additional comments on the 

draft report.



* GSA’s comments, provided by E-mail from its Office of Human 

Resources, were largely clarifying and technical in nature and did not 

express an overall opinion on the report. In a point similar to that 

made by Defense, GSA commented that our report should more fully draw 

attention to the drawbacks of telecommuting in our discussion of work-

life programs. Again, we added clarifying text indicating that some 

managers and supervisors told us that telecommuting has not been shown 

to increase employee productivity and that telecommuting is not 

practical for all occupations or situations.



* In written comments from ITA (see app. V), the Under Secretary for 

International Trade said that the report thoroughly and comprehensively 

addresses the critical issue of the programs needed to manage the 

federal workforce. In addition, he emphasized the need for the 

additional flexibilities mentioned in the report.



We are sending copies of this report to the Chairman and Ranking 

Minority Member, House Committee on Government Reform, and its 

Subcommittee on Civil Service, Census and Agency Organization, and 

other interested congressional parties. We will also send copies to the 

Director of OPM, the Secretary of Veterans Affairs, the Secretary of 

State, the Secretary of Commerce, the Secretary of the Air Force, the 

Secretary of the Treasury, and the Administrator of GSA. We also will 

make copies available to others upon request. In addition, the report 

will be available at no charge on the GAO Web site at http://

www.gao.gov.



If you have any questions about this report, please contact me or 

Edward Stephenson on (202) 512-6806. Key contributors to this report 

are listed in appendix VI.



J. Christopher Mihm

Director, Strategic Issues:



Signed by J. Christopher Mihm:



[End of section]



Appendix I: Objectives, Scope, and Methodology:



The objectives for this study were to provide information on:



* agency officials’ and union representatives’ views on (1) the most 

effective flexibilities for managing their workforces, (2) additional 

flexibilities that would be the most helpful in managing their 

workforces, and (3) whether employee rights could be protected if 

additional flexibilities were authorized and implemented within 

agencies and:



* key practices that agencies should implement for effective use of 

human capital flexibilities, along with specific examples of such 

practices from selected agencies.



To respond to the objectives of this report, we conducted this work in 

two phases and gathered information from a variety of sources using 

several different data collection techniques. During phase one of this 

review, which was completed from May to December 2001, we first 

interviewed representatives from OPM, the federal government’s human 

resources agency; MSPB, a federal agency that hears and decides civil 

service cases, reviews OPM regulations, and conducts studies of the 

federal government’s merit systems; and NAPA, an independent, 

nonpartisan, nonprofit, congressionally chartered organization that 

assists federal, state, and local governments in improving their 

performance. We interviewed representatives of these three 

organizations to gather background information on the federal 

government’s experiences with and use of human capital flexibilities 

and to obtain suggestions about which federal agencies we should 

consider for a more detailed review during phase two of our study. We 

also reviewed numerous reports issued by these organizations on 

governmentwide human capital issues and the use of various human 

capital flexibilities in federal agencies. In addition, we reviewed 

previous GAO reports on a broad range of human capital issues.



During phase one of this study, we also gathered information for our 

two objectives by conducting semistructured interviews with (1) the 

human resources directors of the 24 largest federal departments and 

agencies and (2) representatives from 4 national organizations 

representing federal employees and managers--National Treasury 

Employees Union, American Federation of Government Employees, National 

Association of Government Employees, and Senior Executives Association. 

To produce a general summary of the human resources directors’ views, 

we first reviewed their responses to the open-ended questions we had 

posed to them. Based on our analysis of those responses, we identified 

a set of recurring themes and then classified each director’s responses 

in accord with these recurring themes. At least two staff reviewers 

collectively coded the responses from each of the 24 interviews and the 

coding was verified when entered into a database we created for our 

analysis.



During phase two of this study, which was done from January to May 

2002, we conducted semistructured interviews with managers and 

supervisors, human resources officials, and local union representatives 

from seven federal agencies we selected for more detailed review--the 

Air Force, GSA, IRS, ITA, the Mint, State, and VBA. We interviewed over 

200 officials at these seven agencies. Our interviews with these agency 

and union officials focused on their views about the most effective 

flexibilities, additional flexibilities needed, and protection of 

employee rights. We also asked these officials to confirm and provide 

examples of the key practices we had identified on the basis of our 

interviews with the human resources directors and our related human 

capital work. To produce a general summary of these agency and union 

officials’ views, a staff reviewer coded their responses to our 

questions according to the recurring themes we had developed. A 

separate reviewer verified the coding when entering the information 

into the database we created for our analysis. We sought to obtain 

views from a broad and diverse set of officials who would have relevant 

knowledge and experience regarding human capital flexibilities. We did 

not employ random selection in our choice of individuals to interview; 

thus the responses we obtained should not be viewed as a representative 

sample of all managers and supervisors, human resources officials, or 

local union officials at the seven agencies.



We selected the seven agencies for various reasons, including their 

variety of existing human capital challenges and their range in use of 

available human capital flexibilities. Specifically, we included Air 

Force because the Department of Defense, Air Force’s parent department, 

historically has represented a large percentage of civilian federal 

employees and we had previously reported that the Air Force lacked 

sufficient acquisition and logistic capabilities. We included GSA 

because it had displayed a high use of monetary incentives compared to 

other large federal agencies based on our review of data from OPM’s 

Central Personnel Data File (CPDF). IRS was included based on 

congressional requesters’ interest in including an agency with a strong 

union presence, and IRS was frequently cited as an agency that had 

recently received increased authority to implement a broad range of 

human capital flexibilities. ITA was included because the Department of 

Commerce, ITA’s parent department, had shown a high use of monetary 

incentives, and we had previously reported that ITA lacked an 

experienced staff to monitor and enforce trade agreements. We selected 

the Mint because it was originally a candidate to receive performance-

based organization (PBO) status in the late 1990s and it continued to 

seek additional human capital flexibilities when it did not receive 

this PBO designation.[Footnote 34] We selected State because our review 

of CPDF data showed it to be a low user of monetary incentives, and it 

had recently established an often-cited skills development program for 

its information technology employees. Lastly, we included VBA because 

the Department of Veterans Affairs, VBA’s parent department, continued 

to actively seek authority for increased human capital flexibilities, 

and we had previously reported that VBA was lacking a sufficient 

workforce of skilled claims processors.



For the Air Force, we focused on work at Wright-Patterson Air Force 

Base in Dayton, Ohio, and Langley Air Force Base in Hampton, Virginia. 

For GSA, IRS, VBA, and the Mint, we focused our work at their field 

offices in the Philadelphia and San Francisco metropolitan areas. At 

State, we concentrated our work on the IRM Bureau, the Bureau of 

Administration, and the Bureau of Overseas Buildings Operations in 

Washington, D.C. At ITA, we focused our work primarily on the 

headquarters office in Washington, D.C. Our agency selection process 

was not designed to identify examples that could be considered 

representative of all the human capital flexibilities used at the seven 

agencies reviewed or the federal government as a whole.



In addition, we collected and analyzed data from CPDF on the extent of 

use of human capital flexibilities, both governmentwide and for the 

seven federal agencies we reviewed in more detail. We also collected 

and analyzed documents from the seven selected agencies on their 

experiences with and use of human capital flexibilities. We did not 

attempt to verify the usage data we gathered. We conducted our audit 

work in accordance with generally accepted government auditing 

standards.



[End of section]



Appendix II: Comments from the Office Personnel Management:



UNITED STATES OFFICE OF PERSONNEL MANAGEMENT:



WASHINGTON, DC 20415-0001:



OFFICE OF THE DIRECTOR:



SEP 23 2002:



Mr. J. Christopher Mihm Director, Strategic Issues General Accounting 

Office 441 G Street, NW Washington, DC 20548:



Dear Mr. Mihm:



Thank you for providing the draft General Accounting Office (GAO) 

report entitled Human Capital: Effective Use of Flexibilities Can 

Assist Agencies in Managing Their Workforces. The Office of Personnel 

Management (OPM) has reviewed the draft report and is pleased to offer 

the following comments.



OPM has long been committed to the development and use of human capital 

flexibilities as a way to assist agencies in meeting their strategic 

goals. I am particularly pleased to see GAO issue this report at a time 

when agencies are working hard to pursue the President’s Management 

Agenda, which calls for maximum use of human capital flexibilities as a 

way for agencies to accomplish their missions. OPM has the lead for 

developing criteria to measure agency success on the President’s Human 

Capital Initiative, for providing tools and consultative services to 

help agencies succeed, and for evaluating agency progress. Thus, OPM 

plays a key leadership role in supporting the Agenda governmentwide as 

the managing partner of the Human Capital component of the Agenda, and 

we welcome GAO’s endorsement of the President’s approach.



Beyond carrying out important human capital management outreach and 

assistance activities, we have examined our regulations and guidance to 

identify areas where increased flexibility is appropriate and could 

support agencies’ human capital efforts. We have also aggressively 

publicized those flexibilities in our day-to-day dealings with agencies 

and through publications such as Human Resources Flexibilities and 

Authorities in the Federal Government.



We are also delighted the report clearly acknowledges the need for even 

greater flexibility in our more fundamental HR systems in those cases 

where existing law constrains OPM in providing policies and programs to 

help agencies accomplish their missions most effectively. In some 

areas, legislative changes will be required to maximize agencies’ 

ability to adopt and implement the additional flexibilities needed to 

recruit, manage, and retain the best and brightest of America’s talent 

for the public workforce. OPM supports the legislative proposals 

forwarded in the President’s Managerial Flexibility Act to improve 

human capital management throughout the Federal Government. Our key 

priorities for improving Federal human capital management systems 

further are in two of those fundamental areas you report as requiring 

more flexibility: compensation and hiring. In addition, we are working 

with the Administration in support of Homeland Security legislation 

that would broaden and maximize human capital flexibilities and equip 

the new Department with the tools to become a world-class organization.



We commend GAO’s continuing work to recognize effective human capital 

management as an integral part of agencies’ efforts to achieve their 

missions. GAO’s exposure draft, A Model of Strategic Human Capital 

Management, provides a well-thought-out model for agency use. As you 

know, OPM is working with GAO to incorporate this model into the Human 

Capital Assessment and Accountability Framework, which agencies will 

use in achieving the goals articulated in the President’s Management 

Agenda.



Our review of the present draft report revealed a few areas where we 

could offer technical observations and suggestions on its descriptions 

of the available flexibilities to improve their accuracy. Those 

comments are enclosed.



OPM appreciates your support as we continue to provide leadership to 

identify and promote the use of human capital flexibilities. We look 

forward to continuing our work together in this arena. I remain 

convinced that effective human capital management is the key to 

realizing the President’s vision of a citizen-centered, results-

oriented, and market-based Government.



Sincerely,



Kay Coles James, Director:



Signed by Kay Coles James:



Enclosure:



[End of section]



Appendix III: Comments from the Internal Revenue Service:



DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C. 

20224:



COMMISSIONER:



October 2, 2002:



Mr. J. Christopher Mihm Director, Strategic Issues United States 

General Accounting Office Washington, DC 20548:



Dear Mr. Mihm:



I have reviewed your draft report entitled “Human Capital - Effective 

Use of Flexibilities Can Assist Agencies in Managing Their Workforces”. 

Your report accurately underscores the importance of Federal agencies’ 

use of human capital flexibilities to effectively accomplish their 

mission.



I generally agree with the list of human capital flexibilities that 

agency officials (including IRS supervisors and managers) and union 

representatives cited as most helpful for managing their workforce. 

Still, I believe that the identified flexibilities may not be as 

important in the long run as some of the more deep-rooted changes to 

human capital management policies and practices that agencies like IRS 

have undertaken recently to improve their workforce’s performance and 

accountability.



The, IRS Restructuring and Reform Act of 1998 provided IRS a number of 

new and expanded flexibilities such as paybanding, streamlined critical 

pay authority, expedited and flexible hiring process, redesigned 

performance management system, and enhanced recruitment, relocation, 

retention and performance incentives. The new flexibilities have 

allowed us to improve recruitment quality and timeliness, reshape the 

workforce, increase its capacity, strengthen the connection between pay 

and performance, and establish a clearer job and mission alignment with 

greater accountability from the front-line employee to the most senior 

executive. From a human capital standpoint, we have shifted our 

organizational culture from a seniority-based to a performance-based 

paradigm that emphasizes and rewards high performance and 

accountability. Although the full effect of these new practices and 

changes will take place over many years, it is evident today that the 

IRS has unmistakably become a more efficient, effective, and customer-

oriented organization.



The new statutory flexibilites were clearly instrumental to achieving 

our massive transformation (within 26 months) from a 50-year old overly 

complex and inefficient organizational structure of districts, service 

centers, regions, and a large national operational office to a modern, 

business-like organization. This huge effort culminated with no 

significant disruption of service to the public and resulted in the 

effective placement or voluntary separation of nearly all employees 

whose positions were eliminated. Without the broad flexiblilities 

available to us, we would not have been as timely and successful in 

meeting our statutory mandate to improve and modernize virtually every 

aspect of our organizational structure and mission. In particular, the 

new flexibilities have enabled IRS to:



*Flatten its organizational structure and realign all 100,000 employees 

into a new streamlined one organized around taxpayer groups.



*Decrease the number of management layers by 50 percent in major field 

organizations.



*Reduce the number of mid-and top-level managers by over 350, or 20 

percent overall.



*Devise a transition strategy that required 2,000 executives and 

managers to compete for 1,600 new positions with more rigorous job 

requirements.



*Fill over 3,500 new front-line tax administration and customer service 

positions in a timely manner with top-notch people.



The IRS has gained immensely by drawing upon the best practices from 

the outside since there are many similarities between IRS activities 

and those of other private and public sector organizations. We have 

selectively recruited external senior executives with lifetime 

experience in private-sector organizations to complement our 

exceptional corps of Federal executives. This infusion of talent brings 

in irreplaceable experience in management to the IRS, particularly in 

areas requiring a high level of expertise in systems modernization, 

leading large-scale organizational change, and improving our ability to 

communicate effectively with our stakeholders.



In view of our extremely positive experience with our statutory 

provided human capital flexibilities, I would like to stress how 

important it is to continue providing additional flexibilities to the 

IRS so it can manage its workforce in a manner comparable to the 

private sector. Our experience provides testimony that the availability 

of broad authority to tailor human capital management policies and 

practices to the organization’s unique mission and human capital 

challenges is critical to bringing accountable, results-oriented 

management to the Federal government.



I sincerely appreciate IRS’s inclusion in this important case study and 

to have the opportunity to comment on the results. If you have 

questions, please contact Ronald Sanders, Chief Human Resource Officer, 

at (202) 283-9200.



Sincerely,



Charles O. Rossotti:



Signed by Charles O. Rossotti:



[End of section]



Appendix IV: Comments from the U.S. Mint:



DEPARTMENT OF THE TREASURY:



UNITED STATES MINT WASHINGTON, D.C. 20220:



DIRECTOR OF THE MINT:



September 19, 2002:



Mr. J. Christopher Mihm Director, Strategic Issues U.S. General 

Accounting Office 441 G Street, N.W. Washington, D.C.



Dear Mr. Mihm:



We have reviewed the General Accounting Office’s (GAO) draft report, 

“Human Capital - Effective Use of Flexibilities Can Assist Agencies in 

Managing Their Workforces,” and generally concur with the overall 

observations and conclusions, as well as with the specific Mint 

references.



The report identifies key practices that agencies should implement for 

effective human capital management, such as strategic planning, 

ensuring employee input, and educating all employees regarding the use 

and availability of flexibilities. Cited benefits of human capital 

flexibilities include increased employee morale and productivity as 

well as improved agency procedures and controls for hiring hard-to-fill 

positions.



The report recognizes the United States Mint’s efforts towards 

implementing effective human capital flexibilities, such as alternative 

work schedules, monetary and non-monetary incentive awards, the 

creation of a “human resources flexibilities team,” actively seeking 

employee input, and the revision of personnel-related policies and 

procedures, and we are planning for gainsharing. While the Mint has 

implemented many of the flexibilities identified within the draft 

report, the experiences and successes of other agency practices will 

enable us to both enhance and expand our current flexibilities. The 

report provides an objective, balanced review and assessment of the 

issues surrounding the implementation of human capital flexibilities. 

We believe it will serve as a useful tool that policy makers can use to 

guide Federal agencies seeking to employ greater flexibilities to 

manage their workforces.



I would like to take this opportunity to extend our sincere 

appreciation to you and your colleagues in the General Accounting 

Office for their comprehensive assessment of this increasingly 

significant issue.



Sincerely, 



Henrietta Hoisman Fore, Director, United States Mint:



Signed by Henrietta Hoisman Fore:



[End of section]



Appendix V: Comments from the International Trade Administration:



UNITED STATES DEPARTMENT OF COMMERCE The Under Secretary for 

International Trade Washington, D.C. 20230:



SEP 27, 2002:



Mr. J. Christopher Mihm Director, Strategic Issues U.S. General 

Accounting Office Washington, D.C.20548:



Dear Mr. Mihm:



Thank you for the draft GAO report, “Human Capital Flexibilities”, and 

the opportunity to comment. The report thoroughly and comprehensively 

addresses the critical issue of the programs needed to manage the 

federal workforce.



We have no comment other than to emphasize the need for the additional 

flexibilities mentioned in the report. Human Resources offices are 

using available programs to the maximum extent possible, but need 

additional flexibilities to provide for effective recruitment, hiring, 

retention and management of our workforce.



We thank you for your work in producing this important report.



Sincerely,



Grant D. Aldonas:



Signed by Grant D. Aldonas:



[End of section]



Appendix VI: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



J. Christopher Mihm or Edward Stephenson, (202) 512-6806:



Acknowledgments:



In addition to the persons named above, K. Scott Derrick, Charlesetta 

Bailey, Tom Beall, Ridge Bowman, Molly K. Gleeson, Judith Kordahl, 

Sylvia Shanks, Shelby D. Stephan, Gary Stofko, Mike Volpe, Gregory H. 

Wilmoth, and Scott Zuchorski made key contributions to this report.



FOOTNOTES



[1] U.S. General Accounting Office, A Model of Strategic Human Capital 

Management, Exposure Draft, GAO-02-373SP (Washington, D.C.: Mar. 15, 

2002).



[2] U.S. General Accounting Office, High-Risk Series: An Update, GAO-

01-263 (Washington, D.C.: January 2001); and Human Capital: Meeting the 

Governmentwide High-Risk Challenge, GAO-01-357T (Washington, D.C.: 

Feb. 1, 2001).



[3] National Academy of Public Administration, Revitalizing Federal 

Management: Managers and Their Overburdened Systems (Washington, D.C.: 

1983).



[4] GAO-02-373SP.



[5] Title 5 laws (or requirements) refer to those personnel management 

laws, procedures, and associated functions generally applicable to 

federal employees. Most federal personnel laws governing topics such as 

classification, appointment, pay and benefits, and adverse action are 

contained in Title 5. Title 5 also contains laws unrelated to federal 

personnel issues, such as the Administrative Procedure Act and the 

Freedom of Information Act, that are also applicable to federal 

agencies.



[6] U.S. Office of Personnel Management, HRM Policies and Practices in 

Title 5-Exempt Organizations (Washington, D.C.: August 1998).



[7] Section 2301(b) of Title 5 of the U.S. Code stipulates that federal 

personnel management should be implemented consistent with merit system 

principles, including recruiting or promoting employees based on merit, 

retaining or separating employees based on performance, and protecting 

employees from improper influence. 



[8] Section 2302(b) of Title 5 of the U.S. Code sets out personnel 

actions that may not be taken by any employee who can take, direct 

others to take, recommend, or approve any personnel actions; examples 

of prohibited personnel actions include discrimination, coercion of 

political activity, reprisal against whistleblowers, and nepotism.



[9] U.S. General Accounting Office, Securities and Exchange Commission: 

Human Capital Challenges Require Management Attention, GAO-01-947 

(Washington, D.C.: Sept. 17, 2001).



[10] Public Law 107-67, Nov. 12, 2001.



[11] Executive Order 13150, signed Apr. 21, 2000.



[12] U.S. Merit Systems Protection Board, Issues of Merit (Washington, 

D.C.: December 2000), p. 4.



[13] U.S. General Accounting Office, Federal Workforce: Agencies’ 

Policies and Views on Flexiplace in the Federal Government, GAO/GGD-97-

116 (Washington, D.C.: July 3, 1997).



[14] The General Schedule (GS) is the basic classification and 

compensation system for white-collar occupations in the federal 

government as established by Title 5. Grades represent levels of 

difficulty, responsibility, and qualifications that are sufficiently 

similar to warrant their inclusion within one range of basic pay. Each 

grade includes 10 fixed rates of pay, called steps, through which 

employees advance.



[15] Agencies generally have the authority to pay retention allowances 

up to 10 percent of basic pay to a group or category of employees. For 

group retention allowances in excess of 10 percent (but not more than 

25 percent), agencies need to obtain OPM approval.



[16] A provision of the National Defense Authorization Act for 2002 

provided agencies with discretionary authority to use appropriated 

funds or funds otherwise available to pay for employees’ expenses to 

obtain professional credentials, including the examinations to obtain 

such credentials (5 U.S.C. 5757).



[17] To be eligible, graduates must have maintained 3.5 grade point 

averages on a 4.0 scale or have graduated in the upper 10 percent of 

their graduating classes or major university subdivisions, such as the 

School of Business Administration.



[18] U.S. Merit Systems Protection Board, Restoring Merit to Federal 

Hiring: Why Two Special Hiring Programs Should Be Ended (Washington, 

D.C.: January 2000).



[19] Angel G. Luevano et al., v. Alan Campbell, Director, Office of 

Personnel Management, et al., 93 F.R.D. 68 (1981).



[20] The Department of Defense and IRS do not require OPM approval for 

awards up to $25,000, but awards over $25,000 must be approved by the 

President.



[21] Broadbanding is a personnel classification and pay system that 

involves combining separate grade levels into broad pay bands.



[22] Pub. L. No. 107-296, Nov. 25, 2002.



[23] See, for example, GAO-01-263 and GAO-01-357T.



[24] U.S. General Accounting Office, Human Capital: Practices That 

Empowered and Involved Employees, GAO-01-1070 (Washington, D.C.: Sept. 

24, 2001).



[25] U.S. General Accounting Office, Managing for Results: Building on 

the Momentum for Strategic Human Capital Reform, GAO-02-528T 

(Washington, D.C.: Mar. 18, 2002).



[26] See the following GAO products: GAO-01-1070; Managing for Results: 

Federal Managers’ Views Show Need for Ensuring Top Leadership Skills, 

GAO-01-127 (Washington, D.C.: Oct. 20, 2000); Management Reform: Using 

the Results Act and Quality Management to Improve Federal Performance, 

GAO/T-GGD-99-151 (Washington, D.C.: July 29, 1999); and Management 

Reform: Elements of Successful Improvement Initiatives, GAO/T-GGD-00-

26 (Washington, D.C.: Oct. 15, 1999).



[27] GAO-02-373SP.



[28] GAO-01-1070.



[29] See, for example, the following: U.S. General Accounting Office, 

Whistleblower Protection: VA Did Little Until Recently to Inform 

Employees About Their Rights, GAO/GGD-00-70 (Washington, D.C.: Apr. 14, 

2000), and D.C. Courts: Implementation of Personnel Policies Requires 

Further Attention From the Courts’ Leadership, GAO/GGD-00-75BR 

(Washington, D.C.: Apr. 12, 2000).



[30] U.S. General Accounting Office, Transforming the Civil Service: 

Building the Workforce of the Future--Results of a GAO-Sponsored 

Symposium, GAO/GGD-96-35 (Washington, D.C.: Dec. 20, 1995), and GPRA: 

Managerial Accountability and Flexibility Did Not Work As Intended, 

GAO/GGD-97-36 (Washington, D.C.: Apr. 10, 1997).



[31] OPM allows agencies to post job announcements for even shorter 

periods than 5 business days in situations when inordinately large 

numbers of applications from well-qualified candidates are expected.



[32] U.S. General Accounting Office, Managing for Results: Federal 

Managers’ Views on Key Management Issues Vary Widely Across Agencies, 

GAO-01-592 (Washington, D.C.: May 25, 2001).



[33] U.S. General Accounting Office, Human Capital: Key Principles From 

Nine Private Sector Organizations, GAO/GGD-00-28 (Washington, D.C.: 

Jan. 31, 2000).



[34] A PBO is a discrete management unit that commits to clear 

management objectives, measurable goals, customer service standards, 

and specific targets for improved performance. In exchange for these 

commitments, the agency may be granted flexibilities to deviate from 

some governmentwide requirements, such as certain personnel and 

procurement processes.



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