1. Personnel and Readiness APEX 23 Orientation Program Transforming DoD’s Personnel Paradigams September 11, 2006

2. 2 Our Focus We are engaged in a long, irregular war The All Volunteer Force is our paradigm Cost of manpower will rise more rapidly than budget We will complete transition to an Operational Reserve Civilians can play a larger role Operations will be integrated Geographic focus is on Mideast, South/Southeast Asia, East/Northeast Asia

3. Personnel and Readiness Military Recruiting, Retention and Compensation

4. 4 Percent Non-Prior Service Accessions Benchmarks High School Diploma Graduates Category I-IIIA ASVAB Misnorming, 1977-81. For past 20 years, Services exceeded DoD quality benchmarks But lessons learned in early years of AVF show how important recruiting resources are to achieving numerical and quality goals DoD Recruit Quality Active Duty Enlisted

5. 5 Recruiting Situation (Active Duty) YTD Accession Achievement (Thru August 2006) QuantityQuality Active Duty Enlisted Recruiting (Preliminary Through August) AccessionsGoal Percent of Goal % High School Diploma Graduate (HSDG); DoD Benchmark = 90 percent % Scoring at / above 50th Percentile on Armed Forces Qualification; DoD Benchmark = 60 percent % Scoring at / below 30th Percentile on Armed Forces Qualification; DoD Benchmark = 4 percent Army72,97370,200104%81.2%61.4%3.7% Navy32,589 100%94.6%74.7%0.0% Marine Corps28,62028,353101%95.7%68.4%1.1% Air Force28,25628,124100%98.0%78.3%0.0% DoD Total162,438159,266102%N/A91.0%N/A69.0%N/A1.7%N/A G G GG GGG G GG G G G G G All Services will make recruiting goals in 2006 Army below HSDG benchmark Army DEP starting FY2007 will be low ≈ 14% (vs. 25-35%) R

6. 6 Retention of sufficient numbers of quality people by skill and grade is essential to the sustainment of a ready, well-trained & experienced force Services have seen great success in retention since the start of the war on terrorism but while retention will be challenged, we expect continued success in the future Active Retention Trends

7. 7 Defense Advisory Committee on Military Compensation (DACMC) Recommendations Change non-disability retirement system (i.e. vesting) Revamp Basic Pay table to better reward performance and to support longer career profiles where desirable Change housing allowances/other allowances (remove discrepancies in pay unrelated to performance) Consolidation, simplification and enhancement of Special and Incentive Pays Revise the health benefits for retirees system--more closely align benefit’s value to retiree with its cost to the Department of Defense Periodic evaluation of quality-of-life programs to ensure they are cost-effective and adequate Review of Reserve Component pay/benefits to ensure equality to Active Component members

8. Personnel and Readiness National Security Personnel System (NSPS)

9. 9 What is NSPS? Streamlined and more responsive hiring process Modern compensation system based on pay for performance and market based pay; performance management system that: Values performance and contribution Encourages communication Supports broader skill development Promotes excellence Flexibility in assigning work Preservation of employee benefits, rights and protections Preservation of employee collective bargaining rights

10. 10 Major Design Elements of NSPS Human Resources (HR) System Classification - Simple, flexible pay banding structure Compensation - Performance-based, market-sensitive Performance Management - Linked to agency mission; results oriented; annual pay increase based on performance rating Staffing – more flexible authorities to allow SECDEF to act quickly to respond to mission needs: the right person, in the right place, at the right time Workforce Shaping - Streamlined, mission-responsive reduction in force procedures Adverse Actions and Appeals - Enjoined Mission oriented disciplinary system with streamlined processes to quickly resolve disputes Labor Relations System - Enjoined Collective bargaining approach that recognizes unique national security mission of DoD Reduced scope of bargaining Streamlined bargaining process aimed at quicker resolution of labor disputes and focus on mission

11. 11 Spiral 1: Where We Are Two and a half years of joint design and development “Spiral Development” approach, with Program Executive Office leading effort; oversight by DepSecDef Partnership with Office of Personnel Management Aggressive, comprehensive communications strategy Spiral 1.1 implemented on 30 April 2006 HR provisions only: pay banding, pay for performance, staffing, reduction in force Approximately 11,000 non-bargaining unit employees 12 organizations spread across the Department All employees, supervisors, and managers trained (web based orientation & classroom training, with focus on performance management) Spiral 1.1 Performance Management Workforce trained in HR Elements and Performance Management Performance plans linked to organizational goals and objectives Rating cycle through October 2006 Performance payout in January 2007 DoD announced Spiral 1.2 – over 66,000 non-bargaining unit employees Conversion window October 2006 to January 2007 Workforce trained in HR Elements and Performance Management Rating cycle through September 30, 2007 Performance payouts in January 2008

12. 12 Spiral 1.1 and 1.2 Workforce Concentrations Source of chart data throughout: Unless otherwise noted, DCPDS, as of 11 May 2006, start of Spiral 1.1. US, AK, HI DC, DE, NJ, VA 100+ 200+ 1,000+ 5,000+ Over 77,000 employees under NSPS by January 2007; larger population than most Executive Branch Departments and all Independent Federal Agencies

13. Personnel and Readiness The Operational Reserve: Trends in Reserve Force Management

14. 14 Total Force Contributions DESERT SHIELD / STORM CONTRIBUTION ONE / OEF/ OIF CONTRIBUTION NOTE: DATA SHOWS “DIRECT SUPPORT” ONLY, NOT “INDIRECT SUPPORT” (e.g., RECRUITING, USPFO, MOST AGR SUPPORT). NOTE: DATA SHOWS “DIRECT SUPPORT” ONLY, NOT “INDIRECT SUPPORT” (e.g., RECRUITING, USPFO, MOST AGR SUPPORT). RC CONTRIBUTIONS INCLUDING HAITI, BOSNIA, SWA, KOSOVO PRCs All Reserve Components (e.g., includes USCGR)

15. 15 Reserve Force Mobilization Statistics Current Selected Reserve Members Ever Mobilized for ONE/OEF/OIF Data as of: April 30, 2006 Members Mobilized Once for ONE/OEF/OIF 301,111 Members Not Mobilized for ONE/OEF/OIF 447,543 Members Who Served More than Once in ONE/OEF/OIF 74,458 Not Mobilized – 54.4% Mobilized – 45.6%

16. 16 The New “Operational” Reserve Concept: The new guard and reserve will be organized, trained and equipped to support operational military mission requirements to the same standard as the Active component. Individuals and units will be tasked to prepare for and participate in missions, across the full spectrum of operations, in a cyclic or periodic manner that provides predictability for service members and their families and employers. Key attributes: Limits involuntary mobilization to predictable and sustainable rates (e.g., one year in every six) Reduces the need for involuntary mobilization during the early stages of a rapid response operation Provides a range of participation opportunities and enhances volunteerism

17. 17 New Availability and Service Paradigm STRATEGIC RESERVE Full Time 365 Days Traditional Reservists 38 Days Separate systems; difficult to transition between them. RC employed using multiple authorities. Mobilization or “workarounds” needed for extended duty beyond minimum obligation. Multiple management organizations. OPERATIONAL RESERVE Continuum of Service Single system with enhanced ability to move between full-time and part-time status. “Rheostat” capability to manage contingent workforce. Enhanced ability to access “volunteers” and attract civilian participation. Reduced need for involuntary mobilization. Potential to merge duplicative structures. Full Time 365 days Variable RC Pool 39-365 days Traditional Reservists 39 Days Innovative Programs 0-39 days

18. Personnel and Readiness Transformation: A Journey, Not A Destination