STATEMENT OF
THE HONORABLE W. SCOTT GOULD
DEPUTY SECRETARY
U.S. DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE
COMMITTEE ON VETERANS’ AFFAIRS
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
UNITED STATES HOUSE OF REPRESENTATIVES
SEPTEMBER 23, 2009

September 23, 2009

Mr. Chairman, Members of the Subcommittee, I am accompanied today by John Gingrich, the Chief of Staff, John Sepúlveda, the Assistant Secretary for Human Resources and Administration, and Willie Hensley the Principal Deputy Assistant Secretary for Human Resources and Administration.

 

I am very pleased at the opportunity to come before you today to provide an overview of the Senior Executive Service (SES) performance management system for the Department of Veterans Affairs (VA).

 

Let me say that in these seven months, we have observed that, as a group, VA’s Senior Executives are extremely professional and dedicated.  They strive every day to deliver the best possible services and medical support to our Nation’s Veterans.  They are dedicated professionals who desire to move VA into the 21^st Century organization that the President has charged Secretary Shinseki with accomplishing.

 

Today, and for the near future, there are 23.4 million Veterans in this country who have put themselves on the line for our safety and our well-being.  Currently, 7.8 million Veterans are enrolled in our medical services system.  In 1997, VA developed and distributed enterprise-wide the most comprehensive electronic health record (EHR) system in the country, linking our 153 medical centers to their 768 Community Based Outpatient Clinics (CBOCs), 232 Veterans Centers, as well as outreach and mobile clinics.  This EHR, called VistA, makes VA the largest, integrated health care provider in the country.

 

VA also operates the largest national cemetery system with 130 cemeteries and the Nation’s eighth largest life insurance enterprise with $1.3 trillion in coverage.  VA is second only to the Pell Grant Program in providing education benefits, totaling $8 billion annually, and we guarantee nearly 1.3 million individual home loans having an unpaid balance of $175 billion. 

 

The scope of services delivered through these complex systems makes VA the second largest federal Department.  As such, we require sufficient resources and capabilities to address the needs and expectations of our Veterans.  Employees are our most important resource.  Our senior executives are directly responsible for the success or failure of these systems and programs and meeting our obligations to Veterans and their families.  In 2008, we had approximately 308 career executives and approximately 260,000 employees—1 executive for every 844 employees—one of the smallest executive–to–employee ratios in federal government.  On a daily basis, our senior executives are responsible for demonstrating the highest levels of performance to fulfill the Department’s mission while also effectively managing the performance of a large number of subordinates.

 

VA operates its performance award system in strict adherence to federal law and the Office of Personnel Management’s (OPM) policies and procedures in order to ensure accountability, transparency, and the integrity of the system.

 

With the passage of the National Defense Authorization Act for Fiscal Year 2004 (P.L. 108-136), agencies were required to implement a new performance-based pay system which established a clear and direct linkage between executive performance and pay.  The system was created based on the premise that, “equal pay should be provided for work of equal value and appropriate incentives and recognition should be provided for excellence in performance.”

 

The law eliminated the six senior executive pay levels that had been used to set pay for over two decades in favor of an open pay range.  Prior to the passage of this Act, senior executives were accustomed to receiving locality pay with annual adjustments and/or annual across-the-board pay increases, which were mandated by Executive Order.  After the implementation of the new system, senior executives were no longer afforded locality pay or these adjustments, and they are now required to be evaluated and compensated based strictly on their performance. 

 

While the level of responsibility for our senior executives has not changed, the vast majority of positions have increased in complexity, demands, and scope.  Additionally, the manner in which senior executives are compensated for the execution of their duties is more transparent, centralized, accountable and regulated.

           

Federal regulations (5 CFR 430.301) require agencies to establish performance management systems that hold senior executives accountable for their individual and organizational performance, and to use the results of their performance as a basis for pay, awards, development, retention, removal, and other personnel decisions.  Agencies must establish one or more Performance Review Boards (PRBs) to make recommendations to the Secretary on the performance of its senior executives.  The names of each PRB member must be published in the Federal Register before he or she can serve on the Board and make recommendations to the Secretary.  More than one-half of the PRB members must be career senior executives.

           

Board members make recommendations to the Secretary on performance appraisals, ratings, awards and pay adjustments.  In accordance with federal regulations [5 CFR 534.405 (c)], performance awards must be at least 5% but no more than 20% of a career senior executive’s base salary.

           

In 2007, three years after the new system was implemented, OPM and the Government Accountability Office (GAO) conducted an extensive review of VA’s performance management system, and VA leaders subsequently participated in a hearing before this Subcommittee in June 2007. 

 

Those reviews and that hearing, yielded four recommendations for improvements, and established the need for additional consideration of three elements of VA’s senior executive performance evaluation process.  The recommendations were:

• Ensure all performance plans focus at least 60 percent on achieving measurable results;
• Revise the VA PRB awards determination process to ensure awards are granted based primarily on individual and organizational performance and results achieved.  Discussions within the VA PRB should center on measurable results achieved, and the awards scoring form used by the VA PRB (which leads the discussion and scoring) should more clearly focus on results;
• Train new PRB members on the policies and guidance of the SES PRB process and their role on the PRB.  All PRB members should receive refresher training annually; and
• Management guidance issued to PRB members regarding how to consider organizational performance when determining ratings and awards should be made clear to all PRB members.  A report summarizing organizational performance should be provided to PRB members with instructions on how to use the information in its deliberations.

The three elements requiring further consideration were:

• Consider during the PRB process, and review by the Secretary, the existence and results of investigations by the VA Inspector General and/or the Office of Medical Investigations;
• Appoint PRB members who are not VA employees; and
• Assess VA SES bonuses in comparison with bonuses awarded at other federal agencies.

 

We have fully implemented all of the recommendations, confirmed that the additional three elements are included in our process and made our own internal modifications.  As a result of the significant improvements to our system, OPM and the Office of Management and Budget (OMB) have granted full certification of our performance management system through July 21, 2010.  The criteria for certification are outlined in the Code of Federal Regulations, and VA has met every one of them.  But there is more to be done.

 

We are committed to continuously improving our senior executive management and further strengthening the linkage between senior executive performance and VA strategic goals and operating plans.  As we begin the process for recertification of our system in January 2010, we will be working closely with OPM and OMB staffs to set the highest standards of excellence for our management and performance merit processes.

 

As mentioned previously, in 2008, we had 308 career executives and approximately 260,000 employees—1 executive for every 844 employees.  Let me emphasize again that this represents one of the smallest executive–to-employee ratios in federal government. 

 

Federal regulations [5 CFR 534.405 (b) (1) (i)] allow agencies to establish a performance awards pool using a maximum of 10% of the aggregate career executive salaries.  As stated earlier, the individual award must be no less than 5% but no more than 20% of the senior executive’s base pay.  Historically, VA has used 9%—less than the maximum amount allowed.  The award pool for 2008 was 9%, or approximately $4.3 million.  Overall, VA salaries were approximately $10.6 billion.  For every $1 million in salaries, VA awarded just over $400 in awards in 2008, and a higher percentage (12.7%) of the award pool funds were unspent as compared to the funds in 2007.

 

VA executed our performance merit process with transparency and strict accountability ensuring compliance with guidance from this Committee, OPM, GAO, and federal statute.  There remain areas for improvement, however, which I will discuss later.  The justifications for awards and pay adjustments we provided to the Committee a few weeks ago are the product of a more strict and rigorous performance management process compared to previous years.

• VA places great value on honesty and integrity.  Thus, we held executives to a higher standard by factoring in any pending administrative investigations.  When allegations were substantiated, the SES did not receive any awards.  This was the case for three senior executives in 2008.
• VA ramped up the criteria for performance awards.  The statute allows senior executives who are rated at the fully successful level or higher to be considered for performance awards.  VA, among a handful of agencies, only considered those senior executives rated at the excellent or outstanding level to be eligible for performance awards.  Therefore, senior executives who were fully successful did not receive performance awards last year; this constitutes approximately 11% of the total senior executive pool.  In most instances, newly appointed senior executives during their period of probation are rated at the fully successful level and therefore do not receive performance awards.  This results from the fact that new senior executives generally have not had sufficient time to make significant contributions to their organization.
• VA prudently used our financial resources in 2008 by:
  • reducing the maximum pay adjustment percentage allowed for senior executives who were rated at the fully successful from 5% to 3%, and excellent from 7% to 6%.  Performance awards are one-time payments, but pay adjustments are long-term and factor into an executive’s retirement.  As a result, our reduction in percentages makes an even greater impact on VA’s financial resources than the immediate reductions in award caps.
  • instituting an internal cap on the total performance-based compensation (awards and adjustments) that senior executives could receive in 2008.  The total amount for performance awards and pay adjustments was capped at $35,000, with the maximum performance award amount not to exceed $30,000 for any senior executive.  By comparison, the statutory limit for the performance award alone was $34,440.  By implementing this cap, for example, a senior executive who received a $30,000 performance award could receive up to a $5,000 pay adjustment.  All of the awards were reviewed and many were adjusted at the PRB level before reaching the Secretary for review and approval.
  • making meaningful distinctions between senior executive positions and responsibilities.  VA places senior executives into one of three pay bands.  A senior executive’s salary is capped at the maximum limit for his or her respective pay band.  The maximum salary for an executive is currently $177,000, and approximately 34% of our senior executives are in the most complex positions that justify being in band one with the potential of earning this amount.

 

For 2008 these limitations restricted senior executives to $35,000 for performance-based pay, which is below the potential performance-based pay of $60,000 or more.

 

In addition, some of our newly appointed senior executives, with broader spans of control and greater responsibilities, earn less than high level General Schedule employees (i.e., Grade 15 non-executives) with less control and responsibility.  This occurs because, unlike General Schedule employees, senior executives are not eligible for across-the-board pay increases, periodic or accelerated step increases, or locality pay as mentioned previously.  

 

VA is very appreciative of the recommendations from the Subcommittee, OPM, and GAO.  As we have described, these recommendations, as well as our internal performance policy guidance, have resulted in more accountability for every SES member; enhanced the credibility and integrity of our system; and, promoted excellence in support of our Nation’s Veterans and their families.

 

While we are here today to discuss last year’s process, I must stress we have and plan to take actions that will produce more visibility and accountability for the future.  

 

We are currently preparing for the FY 2009 process by benchmarking other federal agencies for best practices, and drafting end-of-annual performance appraisal instructions as well as award and pay adjustment guidelines.

 

VA will continue to seek guidance from OPM and OMB on ways to continuously improve our system through: 

• training;
• strengthening adherence to OPM’s criteria for certification;
• ensuring fairness and equity for all executives in the performance management process; and,
• linking FY 2010 performance plans to VA operating plans.

 

We are adding additional oversight.  All senior executive actions will be critically reviewed by the Assistant Secretary for Human Resources and Administration, who is also the Department’s Chief Human Capital Officer, before being forwarded to the Chief of Staff and eventually through the Deputy Secretary to the Secretary for final approval.   Every Performance Review Board recommendation regarding senior executive performance awards and/or pay adjustment recommendations is reexamined.  As part of that reexamination, every PRB recommendation is weighed against measurable organizational results, including reports from the Offices of the Inspector General, General Counsel, Medical Investigations, Resolution Management and public scrutiny. 

The Assistant Secretary for Human Resources and Administration will also serve as the Chair of the Performance Review Board to ensure that all performance actions are aligned with federal law and OPM criteria.

           

As one last verification, the Secretary has charged the Chief of Staff to personally interview all individuals who are recommended for senior executive positions in the Department prior to approval.  This ensures consistency across the Department in several areas including: understanding VA’s strategic direction; their responsibility as senior executives to successfully perform at the executive level; and the need to demonstrate the character and integrity that the public deserves from all civil servants. 

 

We are standing up a Corporate SES Management Office to better manage and oversee all SES recruiting, retention, assignments, promotions, incentives, and awards to more effectively develop and maintain standards for performance of senior leaders throughout VA.  The Corporate Office will be responsible for implementing leadership training and a new certification program for senior executives.  The program will require senior executives to receive leadership training and development and demonstrate that they have the knowledge, skills, and abilities to continue to operate at the executive level.  VA’s senior executives will be certified every three years.  

 

The Corporate Office will also be responsible for managing the Senior Executive Candidate Development Program, which is a formally structured developmental program designed to establish the bench strength in our executive talent pool.  High performing General Schedule employees are chosen for the program through a rigorous selection process.  From 2008 to 2009, approximately 337 individuals have applied to VA’s program and 60 were selected.  Upon completion of the program and certification by OPM, graduates are eligible for noncompetitive appointments to senior executive positions.  We are committed to using the program as an effective tool to increase diversity in the leadership ranks and to mirror the diversity across the Department.  We are making progress in this area as approximately 15% of the program participants for 2008 and 2009 are African American, 3% are Hispanic, and 2% are Pacific Islanders.  Overall, 50% of the participants are female.

 

We are also holding our SES’ accountable for personal actions.  For those who do not perform, we take the proper procedures to either improve deficiencies or remove the individual from the SES ranks. 

 

Secretary Shinseki is committed to transforming VA into a “People-centric, Results-driven, and Forward-looking” Department.  In this regard, he will continue to use performance-based pay as a way to recognize those executives who make significant contributions to the transformation of VA.  We will hold every senior executive accountable for achieving measurable results.  Senior executives who excel, while maintaining the highest degree of public trust, confidence, honesty and integrity, will be rewarded within the federal guidelines established. 

 

Thank you for your time and interest to better serve our Nation’s Veterans.  I look forward to your questions.

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