September 15, 2009 Department of Defense NSPS Update Presented to: APEX 29 DoD SES Orientation Mr. Brad Bunn Program Executive Officer

September Today’s Discussion NSPS Today Program Review of NSPS Internal Program Evaluation Proposed Legislation What’s Ahead

September Current Status Over 219,000 employees covered Further conversions of organizations to NSPS on hold, pending outcome of the Defense Business Board (DBB) Report NSPS organizations/employees continue to operate under NSPS regulations and policies Includes new hires, promotions, reassignments, etc., into NSPS positions to meet mission requirements Evaluations and external reviews ongoing Potential statutory changes under consideration

September NSPS Workforce Today United States U.S. Territories Foreign Areas Total 199, ,654219,577 Covered (218,828) White Collar Non-Bargaining Unit Employees* * 749 employees are now covered in 21 bargaining units established after conversion to NSPS Not Covered White Collar Bargaining Unit Employees (275,500)** Wage Grade Employees (Statutorily Excluded) (152,324) Others Excluded: Defense Labs (excluded until 2011) Intel Faculty PFPA (Police) SES/SL/ST, HQE Army Navy/Marine Corps Air Force DoD 4 th Estate Total 81,20368,70743,12626,541219,577 **Eligible, but no plans to convert to NSPS

September NSPS Program Review

September Background May 2009 – DepSecDef requested the Defense Business Board to establish a Task Group to review NSPS to determine: If design principles and methodology for implementation are reflected in the program objectives Whether program objectives are being met Whether NSPS is operating in a fair, transparent, and effective manner DBB Task Group Rudy deLeon (chair) Robert Tobias Michael Bayer Task Group methodology Data & information from Program Executive Office, NSPS Interviewed senior leaders in NSPS organizations Interviewed labor union leaders Collected public comments via Federal Register Held two-day public meeting, included testimony from experts and DoD employees, managers, union officials Issued final report on August 25, 2009

September Observations Basics Original NSPS purpose: more flexible, mission-based personnel management system linked to DoD mission and organizational goals NSPS labor management provisions greatly damaged “strong sense of partnership and commitment that had been established... in the 1990s” DoD needs to align resources to its priorities and build critical capabilities in the workforce Performance management system to enhance organization performance Compensation and classification tools to recruit and retain quality employees Reactions to NSPS extremely divergent Supporters cite flexibility, performance-based criteria, overall effect on performance Critics cite lack of transparency, fairness, and oversight NSPS has been a lightning rod for opinions on how to manage the Federal workforce and especially the role of collective bargaining and labor management relations

September DBB Findings Successes Performance management system is succeeding Alignment of individual and organizational goals Initial training effort unprecedented More is still needed, particularly for supervisors Ongoing PEO self-evaluation effective in identifying areas that need improvement Best practices among Components should be leveraged for uniform application across Department

September Recommendations about NSPS: Reconstruction (1) Separate from the current NSPS program and immediate improvements to it Start with challenging the assumptions and design of NSPS Have “a true engagement” of the workforce in designing changes and implementation Set the desired outcomes, measure, and collect results data Revisit KPPs and define more robust success measures prior to implementing any reconstruction change Set effective benchmarks/measurable standards to show whether system improves organizational performance Formally plan and implement sustainment training on NSPS and develop leadership capacity

September Don’t add units until DoD has implemented a corrective action plan and has data that show the actions address the issues identified and reconstruction is complete (4) Significant time for “moratorium and diagnostic period” of reconstruction Immediate, less drastic actions are needed for employees still covered by the system, separate from reconstruction Continued GAO monitoring of NSPS, especially unintended EEO consequences (6) PEO and Components should establish comprehensive measures to analyze rating/payout/share differences and EEO effects PEO should establish a plan for systematic and periodic review of the data and what actions should be taken on the findings Recommendations about NSPS: Continue Moratorium (4) Monitor EEO (6)

September Pay pool lack of transparency and extremely complicated sub-processes Simplify processes and return rating and reward authority to 1 st /2 nd line supervisors Consistent pay pool size, business rules, and funding levels reinforce that different share outcomes are due to employee performance, not organizational difference Complex share calculations breed suspicion funding is low and ratings are forced Share recommended ratings Increase leadership and communications training, and create performance management collaboration between employees and management Grant full GS annual adjustment to employees rated 2 or higher Expand PEO data collection and monitoring: Rating/payout changes and decision levels to identify supervisors who need more skills Publication of (PRA/Pay Pool Manager level) pay pool results and statistics Pay band(s) 2 too wide for clear linkage to career progression Range of work and pay span from minimum to maximum of the band are too great Width increases employee pay expectations, which are frustrated by control points to manage pay progression for similar positions among a very large occupational mix Value for recruitment/retention in a competitive labor market is offset by lack of transparency with in-band reassignments rather than competitive GS promotions, and by how the 5% pay increase provision is used and who gets it Recommendations about NSPS: Address Identified Issues (5)

September NSPS weakens the reserve of trust between supervisors and employees Supervisors unprepared to take on added NSPS workload despite training Variable business rules and PAA tool that can still be improved Added layer of competencies require aggressive training program Difficulty balancing appraisal and other work during Oct-Dec “Promote the value of supervisory duties in the workplace” “Supervisors must learn to alter the workload so that necessary supervision as well as the day-to-day work activities are successfully accomplished” “Continued improvements in supervisor-employee performance-related dialogue” Formally collect and implement best practices DoD-wide Recommendations about NSPS: Address Identified Issues (5) continued

September Reestablish DoD commitment to partnership and collaboration with employees through their unions (2) Partnerships at senior level to work through issues vital to DoD success Partnerships have garnered cooperation between labor and management “Achieving the ultimate goal of a performance management system with proper compensation, hiring, and classification flexibilities” depends on trust between DoD, affected union organizations, and employees Establish DoD’s commitment to strategic management and investment in career civil servants (3) Fund critical infrastructure for effective HC strategy and results-oriented culture Appoint an advocate for human capital to provide for institutional leadership development, supervisory training opportunities, and time for employees/supervisors to acquire skills DoD didn’t establish a center of excellence for using civilian talent, whose director is in on resource discussions DoD didn’t first systematically develop and encourage a supervisory cadre Reciprocate the commitment DoD expects the workforce to show to performance, with a commitment to the workforce Recommendations beyond NSPS: Union Partnerships (2) Civil Servants (3)

September Create a collaborative process for GS managers and employees to design and implement a performance management system that ties employee performance goals to organization goals, and explore replacement of the GS classification system (7) “(T)he GS system falls short in many of the areas in which NSPS has made progress such as aligning individual performance to organizational goals, making meaningful distinctions between performance, and encouraging performance discussions between employees and their supervisors.” “If DoD decides to go forward to develop a system for bargaining unit employees,” do it in parallel with NSPS reconstruction Recommendations beyond NSPS: Reform GS System (7)

September Next Steps Report to be used to inform senior leadership in determining future of NSPS NSPS Principals meeting Provide DSD with Component leadership perspective on report and NSPS DAWG meeting (TBD) Union meeting Engage OPM, OMB/WH and finalize decision (this fall) Continue Hill engagement on NSPS provisions in House and Senate versions of NDAA FY10

September Program Evaluation

September Background PEO mission includes evaluating NSPS Spiral development process assumes: Evolution of policies over time Informed by evaluation of operational system Measured against Key Performance Parameters (KPPs) Contracted with SRA to conduct evaluation May 2008 completed first evaluation report Available on NSPS website:

September Objectives/Scope of the 2008 Evaluation Determine whether NSPS is achieving or is on track to achieve expectations set forth in its KPPs High-Performing Workforce and Management Agile and Responsive Workforce and Management Credible and Trusted System Fiscally Sound System Supporting Infrastructure (Training and IT) Identify lessons learned and best practices to improve the implementation and administration Identify aspects of NSPS and its operation that warrant attention and possible adjustments Data Sources Used in NSPS Evaluation Defense Civilian Personnel Data System (DCPDS) Compensation Workbench (CWB) Performance Appraisal Application (PAA) Focus group and interview data from 12 site visits Status of Forces Survey – Civilian (SOFS-C) attitude survey (2006 – 2008)

September NSPS 2008 Program Evaluation Signs of progress in achieving KPPs, as well as areas that require attention Mixed results not surprising, with implementation still at an early stage - typical of major transformations Workforce as or more positive about human capital management in general compared to non-NSPS workforce But more likely to be negative than positive in opinions about NSPS itself Spiral 1.1 opinions improved after 2 nd year/2 rating cycles in NSPS Senior officials generally optimistic about NSPS’ potential, but agree more time is needed to see results Split NSPS-GS workforce contributes to challenges and slows transition

September PEO 2008 Evaluation Report ProgressAreas for Attention  More attention being paid to performance planning and discussion, individuals’ alignment to organization goals, rating distinctions for different performance levels  Uncertainty about criteria for high rating; some doubt rating fairly reflects their performance  Some reluctance to address marginal performers  Rating skew along pay band lines has EEO significance  Leaders feel panel process achieved fair, consistent application of rating criteria  Employees used rating reconsideration process  Information shared by some panels helped allay suspicion  Many employees and raters distrust panel process as too remote from their work/too apt to hold down ratings  All levels concerned about heavy reliance on assessment narrative: uneven quality, time and effort to write well  Pay band structure and pay flex help hiring in some markets and for developmental jobs.  Generally positive about pay (other than for reassignments to harder jobs) and payouts  Career paths uncertain  Many employees want same reassignment pay raises they would get with GS promotions  Generally good NSPS training (including on line and supple- mental) though classroom trainer knowledge varied  Useful pay pool IT tools  Many employees and raters lack skill to write assessment  Problems with automated performance plan/ appraisal  Internal compensation policies hadn’t firmed up/info lacking  Sustained positive opinions about job, compensation, ease to assign/realign work, cooperation, performance-pay linkage, supervisor, leadership, performance feedback  Opinions specifically about NSPS improving performance-pay linkage, performance, staffing declined from baseline  Time demands/level 3 ratings detract from unit performance

September Pending Legislation

September H.R (NDAA 2010), Sec Restores full annual government-wide pay adjustment to NSPS employees rated above Level 1 or not rated Prohibits coverage of NSPS to any individual and to any position not subject to NSPS as of June 16, 2009 Mandates that within one year of enactment, SECDEF converts all NSPS employees and positions back to pay system that would apply had NSPS not been established (no loss or reduction in pay) Mandates if SECDEF wants to retain NSPS, SECDEF must submit a written report NLT 6 months after enactment to the President and Congress Congress has to act to preserve NSPS

September S (NDAA 2010), Sec Repeals NSPS by NLT 1 year after date of enactment of NDAA 2010 NSPS employees must be transitioned out No loss in pay NSPS remains in effect (up to 1 year) for organizational and functional units included in NSPS as of January 20, 2009 Employees with rating above Level 1 or no rating receive 100 percent of GPI during transition

September S (NDAA 2010), Sec SECDEF has discretion to retain NSPS by submitting a report to Congress NLT 60 days after enactment of NDAA 2010 Unilaterally avoids termination of NSPS Waives other provisions of bill Absent SECDEF Report grants SECDEF authority to establish new personnel authorities subject to government-wide collective bargaining obligations

September What’s Ahead Leadership to consider future of NSPS, in light of: DBB recommendations Internal evaluation Congressional concerns Department’s human capital requirements Administration priorities and initiatives Opportunity to take ownership of program, demonstrating commitment to workforce Success begins with and depends on senior leader engagement, at every organizational level