The Defense Transformation for the 21st Century Act


House Committee on Government Reform

Chairman Davis, Ranking Member Waxman, Members of the Government Reform Committee:

Thank you very much for the opportunity to appear this morning and comment on The Defense Transformation for the 21st Century Act. I am Colleen Kelley, National President of the National Treasury Employees Union and I appear today on behalf of the more than 150,000 federal employees represented by NTEU.

NTEU is very concerned by the scope of the legislation before the Committee today as well as its timing. The provisions of this bill would permit the active duty military to be downsized and may ultimately lead to the contracting out of many of those positions. It has been estimated that hundreds of thousands of jobs currently done by the uniformed military could end up being done by contract employees. The legislation also seeks to abolish some of the most fundamental civil service rules and protections for civilian employees of the Department of Defense. Most importantly, it seeks to accomplish all of this with very little opportunity for Congressional review and insufficient input from the military and civilian Defense Department employees who will find themselves subject to these changes.

NTEU is at a loss as to exactly what the problem is that the Defense Department is attempting to fix. The Defense Department is coming off a stunning victory in the war with Iraq. The Secretary as well as both the military and civilian Defense Department employees engaged in that battle deserve nothing but praise for their quick and agile response. Yet, it seems the thanks both the soldiers and the civilians are about to get is to have their jobs contracted out and their civil service rights and protections eliminated.

The legislation seeks to permit the Secretary of Defense to sidestep the Office of Personnel Management as well as most Congressional oversight and institute new, untested pay systems for Defense Department employees. The pay for performance scheme this legislation would permit the Defense Secretary to implement would be based on a performance appraisal system that has come under intense criticism for being unfair and biased. Performance appraisals in the federal government are routinely challenged as being subjective. Yet, rather than correct these underlying flaws in the system and take the time to develop a meritorious pay for performance system, this legislation is being rammed through Congress.

NTEU questions where in the federal government – or for that matter in the private sector – pay for performance is working. Serious questions have been raised about the pay for performance systems that have been tried. These systems have given rise to a sense of unfairness among employees and to the view that managers exercise too much favoritism under pay for performance schemes. Even the head of the General Accounting Office, David Walker, has expressed concerns about the DoD pay proposal. Like with most federal agencies, he has pointed out that the Department of Defense needs to improve its management systems and show that adequate safeguards are in place to minimize the chances of abuse. He has also pointed out that the department should have consulted with its unions from the start.

The General Accounting Office (GAO) recently released its study of the Federal Aviation Administration’s (FAA) 7 year overhaul of its pay and personnel systems. The FAA replaced its pay system, which had been based on the General Schedule grade and step system, with what it calls a market-based pay for performance system. When the GAO interviewed FAA employees concerning the new system, nearly two-thirds of the employees interviewed “disagreed, or strongly disagreed that the new pay system is fair to all employees.” This sense of unfairness, and employees’ view that they will not be treated equitably by their managers, has led a greater number of them to seek union representation – the percentage of the FAA workforce who are members of unions jumped from 63% to almost 80% following the implementation of the new pay system.

Concerns about federal supervisors and managers having more control in the pay setting process are by no means unique to the FAA. The group, FPMI Communications, undertook a poll of federal workers last October on the subject of pay for performance. Fully two-thirds of the respondents in that poll believed that giving managers more authority on pay would lead to too much favoritism.

A demonstration on pay banding at the Bureau of Alcohol, Tobacco and Firearms (BATF) is another good case in point. The BATF program began in early 2000, with the first round of salary reviews scheduled for October of that year. Performance standards and critical job elements needed to be in place prior to implementation of the first salary reviews, however, insufficient thought was given to their development and haphazard standards resulted. As is far too frequently the case, managers received little or no training on how to write pay for performance evaluations for this new system. Although NTEU was given the opportunity to review and comment on the proposed standards, our suggestions largely went unused.

Under the BATF program, once performance appraisals were written by managers, they were forwarded to Performance Review Boards (PRBs) that further reviewed the evaluation and issued a final rating of employees. That rating was subsequently entered into a pay matrix that would determine whether or not the employee would be entitled to a performance based raise.

The PRB was given the authority to downgrade evaluations when compared to other employees in the same pay band and job series. And, in fact, evaluations were downgraded. Employees working for poorly trained managers who were, therefore, unable to write a clear, well-documented appraisal suffered under this system. No matter how stellar their performance, if the individual’s supervisor was unable to document that performance in a well-written appraisal, the employee would not be eligible for a performance increase. In addition, the authority the PRB was given to downgrade performance evaluations led to the belief among many of our members that the Bureau was operating within a fixed pool of money. In other words, some employees had to have their evaluations downgraded in order for others to receive pay raises. There is no question that this perception of manipulation of the process by management led to employee skepticism about the overall performance appraisal system.

Another feature of the BATF program was one that permitted employees to provide a self-evaluation as well as any external information regarding their individual performance that they thought would be helpful in their review. This could include customer letters or recognition by a professional association or other information the employee thought complimentary to his or her performance review. Although this part of the program was voluntary, most employees were given no training or guidance on developing these self-assessments, further leading to skepticism concerning the program.

While a fair and unbiased performance appraisal system must be an underlying principle in any pay for performance system, the same basic principles must be heeded when judging employees in other situations. In 1996, Congress strongly supported this principle during consideration of a proposal (H.R.3841) to give added weight to the use of performance evaluations during Reductions in Force (RIFs) of federal employees. Members of the House of Representatives raised serious questions during floor debate on this bill concerning the lack of formal guidance for performance appraisals and questioned their tendency to be subjective. In a September, 1996 speech on the House floor, Representative Cardiss Collins, the Ranking Member on the House Government Reform Committee, stated “…performance appraisals are routinely challenged as being subjective and unfair, over inflated and biased against minorities.” The proposal was soundly defeated. However, little has changed since 1996 concerning performance appraisals.

Evidence also points to pay for performance schemes in the private sector producing less than desired results, especially when implemented in large or complex organizations. In testifying before the House Civil Service Subcommittee, Under Secretary of Defense for Personnel and Readiness, David Chu, noted IBM’s use of pay for performance as something that would be good for DoD. Ironically, approximately three years ago, the Ford Motor Company implemented a Performance Management Program and unwittingly created a culture of backstabbing as employees tried to outdo one another instead of working as a team. Instead of cooperation, the system fostered infighting and divisiveness.

Individual employees were rated against each other and instead of working toward a common goal, employees became primarily focused on individual performance. The previous culture of team problem solving and risk taking gave way to a situation where employees were unwilling to make suggestions or propose solutions that might result in their being rated lower than their fellow employees. The federal government, much like Ford Motor Company, relies on employees working together to deliver results. Ford was forced to dismantle key components of their Performance Management Program in the face of sinking employee morale. There are lessons here for the federal government as well.

Similarly, the Fairfax County, Virginia School District was forced to terminate its merit pay plan when it became clear that teachers were being pitted against each other and cooperation and teamwork were being discouraged. Moreover, the School District’s commitment to its merit pay plan waned as soon as the program began costing the district money.

Merit pay awards in Fairfax County were scheduled to be 10% salary increases that would be included in base pay and counted toward retirement. When the time came to award these increases, the School Board, facing a budget crunch, reduced the merit raise amount from 10% to 9% and deemed it a bonus instead of a salary increase that would count toward retirement benefits. Still facing budget concerns, the Board subsequently abolished merit pay entirely.

The Texas legislature passed a merit pay law in 1984, but just like Virginia, they too, encountered fiscal problems and scaled back their program. When 100,000 teachers qualified for merit pay, the state changed the rules retroactively to reduce the number of qualified teachers by approximately one-third.

Pay for performance means something different to almost anyone you ask. What seems to be consistent across the board, however, are the problems in designing a quality pay for performance system. Employees must be encouraged to work together rather than compete against one another. A system that promotes individual achievement over group effort is bound to create additional problems. A pay for performance system designed to be used only when budgets are flush will breed contempt for the system and will not work. Development of the performance evaluation system used to rate employees will fail absent employee feedback and commitment to the process. And, appropriate manager training in using the new system is key to ensuring that the system will be perceived as valid.

The Office of Personnel Management recently released the results of its ambitious survey of federal employees on a number of key issues. It was particularly disturbing to NTEU that 60 percent of federal employees do not believe that their leaders generate high levels of motivation and commitment. Moreover, less than half of the employees surveyed think positively about the integrity of their leaders and the fairness of their workplaces. Are these the leaders who employees are now supposed to trust to write unbiased performance evaluations?

Is this the track record that the Department of Defense seeks to follow? Is a new pay for performance system – implemented without thorough Congressional review and without heeding the lessons we have learned from other efforts to implement pay for performance really in the public interest?

The proposed legislation also seeks authority for the Secretary of Defense to reclassify, discipline, suspend, demote or dismiss employees outside the tested and constitutionally sound procedures set up under current law. And, while the Defense Department is stripping employees of their most important civil service rights and protections, the legislation limits the Department’s obligations to collectively bargain with its unions.

This unprecedented proposal goes far beyond even the flexibilities included in the recent Department of Homeland Security legislation. Many Members of Congress made clear during the homeland security debate that they would anxiously watch how the new flexibilities granted to the Homeland Security Department would be implemented The ink is barely dry on that proposal and in fact, the parties have only begun to work toward the goal of developing a new human capital management system for the agency. Nonetheless, the Defense Department has been adamant that it requires authority far beyond those flexibilities – authority that they have not been able to justify the need for.

And, it is particularly important to point out that the flexibilities the Secretary of Defense seeks would not be constant or set. Rather, each new Secretary of Defense could change them. Presumably, if the current Defense Secretary decided, following implementation of a particular change, that he wanted to change it again, he would have the power to do so. Giving unfettered authority to the Secretary of Defense to constantly – if he or she chose – alter personnel rules is ludicrous. It is nothing less than an abdication of Congressional responsibility and turns a blind eye to the possible effects such sweeping authority may have on employee morale. If the goal is to ultimately eliminate all federal employees and contract out the entire Defense Department, this is certainly a good step down that road. After all, what employees are going to be interested in accepting a job or staying in a job when the rules regarding pay, performance evaluations, downsizing and collective bargaining rights are permanently subject to change on a moment’s notice and at the whim of whoever currently occupies the position of Secretary of Defense?

In the last decade, our Nation has had five Secretaries of Defense. Does this Committee think it is appropriate that every one of them should have been able to change the human capital management system for employees of the department? Regardless of the reasons the current Defense Secretary may espouse for requiring this unprecedented level of flexibility, there is absolutely no justification for giving Defense Secretaries into the foreseeable future the ability to constantly change the rules under which their employees operate.

As you know, the Homeland Security legislation permits two political appointees, the Secretary of the Department and the Director of the Office of Personnel Management to change current law in six areas of Title 5:

Chapter 43 establishes the performance appraisal system for employees and contains the system under which management takes action against poor performers. Workers are given an opportunity to improve their performance and if that fails and they are terminated from their jobs, they are given the right to appeal the decision to the Merit Systems Protection Board (MSPB).

Chapter 51 sets up the classification system so that federal jobs can be assigned grades and have pay rates established. A classification system ensures that there is some equity between similar jobs in the federal government and serves the important purpose of preventing bidding wars between agencies for personnel.

Chapter 53 establishes the federal white-collar pay system, the senior executive pay system and the blue collar pay system. Waiving this chapter means that employees may or may not receive annual Congressionally approved federal pay raises.

Chapter 71 gives employees the right to form unions and engage in collective bargaining. The current President has already shown his willingness to use his authority to exempt employees from their bargaining units for national security reasons. NTEU remains concerned that the “need” for flexibility in this area is little more than a thinly veiled attempt to eliminate unions in the public sector. The effect of waiving Chapter 71 is to allow the Secretary to unilaterally determine employees’ eligibility to vote in union elections, set negotiability rules and procedures for settling disputes, set internal union processes and determine the appropriateness of contract provisions. Giving the Secretary the ability to write and rewrite these rules has the effect of making them meaningless.

Chapter 75 sets up a system for disciplining employees for misconduct and a system for employees to appeal these actions. This is nothing more than basic due process and it is difficult to understand the need for flexibility in this area.

Chapter 77 establishes the procedure for appealing discrimination decisions either to the EEOC or MSPB and establishes judicial review of MSPB decisions. These procedures are necessary to protect against illegal and unethical action by agency managers in instances such as whistleblower retaliation, discrimination, corruption and favoritism. What is the need for flexibility in this area?

Yet, the flexibilities proposed for the Department of Defense go well beyond those already enacted for the Department of Homeland Security. Defense Secretaries would have the authority to waive Chapter 41 – training – an area where the federal government has already shown an inability to accomplish goals. Does this mean the Secretary would have the authority to abolish training its employees altogether? Chapter 55 – which sets out back pay and severance pay rules. Where is the need for flexibility here? The Secretary would also have the authority to waive Chapter 59 (allowances including uniform and housing allowances), as well as parts of Chapter 31 (authority for employment), Chapter 33 (examination, selection and placement) and Chapter 35 (retention preference, restoration and reemployment rules).

I also have serious concerns with several provisions in the legislation that are aimed at privatizing thousands of federal jobs. The bill seeks to privatize firefighting and security jobs at military facilities, and open up to contractors thousands more at military depots. And perhaps the most dangerous contracting change in the bill is aimed at promoting the widespread Department-wide use of an untested procurement process known as “best value”.

I was a member of the Commercial Activities Panel, a group of experts charged with developing recommendations for improving government procurement policies. One of the issues that divided the Panel was “best value” contracting, in which contracts are subjectively awarded based on arbitrary criteria. If the prohibition on the use of “best value” at the Department of Defense is repealed, billions of taxpayer dollars will be sent out the door to unaccountable contractors for gold-plated services the government does not need.

Before privatizing more federal jobs, Congress should act to clean up the current waste, fraud and abuse in government contracting by requiring more accountability and oversight of contractors and by requiring fair public-private competitions before government work is privatized.

NTEU also has concerns about the inclusion in this legislation of the Administration’s proposal to create a $500 million Human Capital Performance Fund. It is hard not to view funding for this new gimmick as coming at the expense of the 2004 federal pay raise. Rather than putting this $500 million toward a more appropriate federal pay raise, the Administration would give managers broad discretion to give incentive pay to a fraction of the federal workforce. The only thing this is likely to accomplish is a further decline in employee morale.

As the Chairman knows, DoD has also asked for a government-wide provision to be included in the DoD authorization bill to roll back the equal opportunity protections that federal workers currently enjoy. This provision is wrong and has no place in the legislation. The provision would change the law so that the right of a labor union representative to be present at a formal meeting with an employee would only apply to a grievance directly relating to a collective bargaining agreement but not a statutory EEO violation.

NTEU is absolutely committed to defending equal opportunity in the federal workplace. We do not hesitate to act when we believe management has acted against equal opportunity rights, without regard to whether they are granted contractually or statutorily. The DoD proposal is an obstruction to us in that mission. Excluding a union representative from these meetings can result in the abuse of a discriminated worker’s rights or the rights of larger groups in the bargaining unit. For both these reasons, it is essential that current EEO rights are not reduced by this or any other legislation.

In summary, NTEU believes the changes this legislation proposes deserve to be fully reviewed and debated before sweeping legislation like this is approved. The inclusion of flexibilities for NASA in this bill also raises serious questions. It is my understanding that Congressman Boehlert has drafted a competing version of NASA flexibility legislation that, unlike the version included in H.R.1836, is at least the product of cooperation and agreement.

As the Chairman knows, the Securities and Exchange provisions included in the DoD legislation are the product of NTEU working with representatives of the Securities and Exchange Commission along with the appropriate Congressional representatives to reach an agreement that no one finds objectionable. There is no reason why the DoD bill cannot be handled in the same manner and I urge this Committee to slow this train down and work with both DoD and the federal employee unions to determine exactly what flexibilities the Department needs, why it requires those flexibilities and how the agency, Congress and the unions involved can best reach agreement on those changes.

Thank you very much for the opportunity to appear today. I would be happy to answer any questions.