1. September 11, 2006 Department of Defense Mrs. Mary Lacey Program Executive Officer APEX Orientation Program

2. September 2006 DoD’s Flexible and Responsive Civilian Personnel System Performance management system that: Values performance and contribution Encourages communication Supports broader skill development Promotes excellence Streamlined, more responsive hiring process Flexibility in assigning work Preservation of employee benefits, rights, and protections Preservation of rights to join a union Tools for a more effective and efficient workforce What is NSPS?

3. September 2006 Who is covered by NSPS? NSPS Human Resources System Vast majority of DoD employees eligible for coverage Initially applies only to selected GS/GM and Acquisition Demo employees Employees in special pay/classification systems (e.g., wage grade) will be phased in later Certain categories excluded (e.g. intelligence personnel, Defense Labs listed in NSPS law) NSPS Labor Relations System Designed to apply to all employees and labor organizations currently covered by Chapter 71 of title 5 Vast majority of DoD civilian employees

4. September 2006 AFGE v. Rumsfeld Feb 27, 2006, District Court concluded that: DoD and OPM satisfied their statutory obligation to collaborate in developing the system DoD lawfully had the authority to depart from chapter 71 in establishing a new labor relations system New rule fails to ensure that employees can bargain collectively National Security Labor Relations Board does not meet Congress' requirement for "independent third party review" of labor relations decisions Process for appealing adverse actions fails to provide employees with "fair treatment" as required by Congress District Court permanently enjoined adverse actions, appeals, and labor relations Department of Justice filed Notice of Appeal on April 17 and first appeal brief on August 10

5. September 2006 Where We Are 2½ years of joint design and development Spiral 1.1 implemented on 30 April 2006 Human Resources provisions Over 11,000 CONUS GS employees in 12 organizations across the Department Successful IT conversion and payroll interface 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 Lessons Learned Workshop, June 21-22 2006 Announced Spiral 1.2 – over 66,000 employees Human Resources provisions CONUS and OCONUS – two pay schedules (GS and APS) Conversion October 2006 – Jan 2007 Rating Cycle through September 2007 Performance payout in January 2008

6. September 2006 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+

7. September 2006 Major Design Elements Classification Jobs in broad “pay bands” based on work nature and competencies Compensation Pay directly linked to performance and mission accomplishment Performance Management Linked to agency mission Job objectives and contributing factors influence rating Meaningful distinctions in employee performance Employee development with ongoing feedback and dialogue Staffing Flexibility to respond to mission changes The right person, in right place, at the right time Workforce Shaping Emphasis on performance

8. September 2006 Classification Simple – Flexible Based on natural career groups, typical career progression and compensation Sunset special salary rates Career Groups Establish new groups as needed Combine current groups if differences become unimportant Add, combine, eliminate, and/or move occupations Pay Schedules and Bands Stratify occupations within career groups Reflect distinctions in occupations Types of work Education requirements Career progression Pay practices

9. September 2006 Compensation Philosophy Performance based - market sensitive Allows adjustments to market – be competitive Salary increases tie to performance – not time on job Largely sunset special rate supplements Move to market sensitive pay over time Adjust career group, pay schedule, occupation, and/or pay band local market supplement pay differently than rest of government by exception for now Establish analysis capacity this FY

10. September 2006 Performance Management System Results-oriented, mission-focused Clear and understandable (fair, credible, and transparent) Direct link between pay, performance and mission accomplishment Reflect meaningful distinctions in employee performance Robust (capable of supporting pay decisions) Job objectives – the “What” – primary focus Manner of performance – the “How” – contributing factors that influence the objective rating Supervisors are rated on at least one supervisory objective Monitor and develop employees Rate and reward performance

11. September 2006 Managing Performance Supervisors know their employees, what they contribute, and how they spend their time Understand that employees have different needs, motivations, and expectations about their work and work relationships Your workforce has Role Models, Valued Performers, and Unacceptable Performers: your employees know that!

12. September 2006 Employee Motivators What Managers Thought 1. Good wages 2. Job security 3. Promotion opportunities 4. Good working conditions 5. Interesting work 6. Loyalty from management 7. Tactful discipline 8. Appreciation 9. Understanding attitude 10. Feeling “in” on things What Employees Said 1. Appreciation 2. Feeling “in” on things 3. Understanding attitude 4. Job security 5. Good wages 6. Interesting work 7. Promotion opportunities 8. Loyalty from management 9. Good work conditions 10. Tactful discipline

13. September 2006 Staffing & Workforce Shaping Philosophy Staffing Right person –right place – right time Develop capabilities to meet tomorrow’s threats Appointing authority for DoD Easily hire for critical needs Pay flexibility Obtain and keep talent for mission needs Be competitive Work Force Shaping Streamlined, mission responsive Performance based Less disruptive to employees and mission Honor Veterans’ Preference

14. September 2006 In accordance with the NSPS statute: “To the maximum extent practicable, for fiscal years 2004 through 2008, the overall amount allocated for compensation of the DoD employees who are included in the NSPS may not be less than the amount that would have been allocated for compensation of such employees if they had not been converted to NSPS.” Civilian pay accounts are not being increased, but you will have choices you didn’t have before. Resource Management and Funding

15. September 2006 Senior Executive FM Policy Decisions Conversion Adjustment Employee’s basic pay will be set at their current base rate plus a pay adjustment equal to the amount earned to date toward their next WGI January 2007 Pay Adjustment Grant equivalent of GS across-the-board pay increase and locality pay increase for those employees with a current rating of record of Level 2 or above. Pay Pool Funding Floor Department-wide funding floor set at DoD historical average (2.26%) for continuing pay Components have discretion to set bonus portion of the pay pool Protection of Pay Pool Funding Components certify that pay pool funds were used only for compensation of civilian employees

16. September 2006 Why Pay Pools Are Important Provides mechanism for ensuring multi-level accountability and responsibility Ensures decisions regarding compensation and rewards receive higher level review Provides transparency Validates decisions made at the individual level within the context of organization and mission Preserves the integrity of the performance management system

17. September 2006 Evaluating NSPS in the OrganizationPerformance Utility of performance plans Pay pool effectiveness and fairness Pay Pay flexibility and candidate quality Roles and effects of control points Hiring and Assignments Quality of newcomers Ease of assignment change &Planning People and their interaction Mission Funding

18. September 2006 Leadership Focus Leadership Commitment and Communication Be present and vocal, build workforce trust Reinforce NSPS value - ease transition - facilitate buy-in Strategic Alignment of Performance to Mission Alignment starts with you Goals and objectives aligned with mission Results demonstrated and measurable Realistic expectations for self and others Respectful relationships with responsibility understood and accepted Resource Management and Funding Financial management not same as pay pool management Develop compensation strategies/establish decision making authority Training Early and often, and again Commitment and involvement – your keys to success

19. September 2006 Summary A modern, flexible, and agile human resources system Responsive to the national security environment Preserves employee protections and benefits Stimulates an environment where employees are encouraged to excel, challenged with meaningful work, and recognized for contributions Transitions to a culture where feedback and coaching is essential Encourages employees to take ownership of their performance and successes “NSPS is a win-win-win system… a win for our employees, a win for our military and a win for our Nation.” Honorable Gordon R. England NSPS Senior Executive

20. September 2006 NSPS Website QUESTIONS? www.cpms.osd.mil/nsps

21. September 2006 Spiral 1.1 vs 1.2 Spiral 1.1 11,124 employees CONUS only Single pay schedule (GS) Single implementation date (30 Apr 06) NBU (7777 and 8888) Spiral 1.2 66,558 employees CONUS and OCONUS Two pay schedules (GS and APS) Conversion window (Oct 06 – Jan 07) NBU (7777 and 8888)

22. September 2006 Spiral 1.1 Components Army2,348 Navy4,354 Air Force3,142 Fourth Estate1,280 Total11,124 civilians

23. September 2006 Spiral 1.2 Components Army14,373 Navy8,495 Air Force36,706 Fourth Estate6,984 Total66,558 civilians

24. September 2006 Spiral 1.2 Workforce Concentrations Source of chart data throughout: Unless otherwise noted, DCPDS, as of 11 May 2006, start of Spiral 1.1. UK, GE, IT KO, JA 100+ 200+ 1,000+

25. September 2006 Classification Architecture STANDARD CAREER GROUP Pay Schedules Professional/Analytical Tech/Support Student Employment Supervisor/Manager 73% of DoD white collar workforce INVESTIGATIVE & PROTECTIVE SERVICES CAREER GROUP Pay Schedules Investigative Fire Protection Police/Guard Supervisor/Manager 4% of DoD white collar workforce SCIENTIFIC & ENGINEERING CAREER GROUP Pay Schedules Professional Tech/Support Supervisor/Manager 19% of DoD white collar workforce MEDICAL CAREER GROUP Pay Schedules Physician/Dentist Professional Tech/Support Supervisor/Manager 4% of DoD white collar workforce

26. September 2006 $25,195 - $60,049 $38,175 - $85,578 $74,608 - $124,904 Professional/Analytical Pay Schedule Technician/Support Pay Schedule Supervisor/Manager Pay Schedule $31,209 - $60,049 $55,360 - $106,186 $77,793 - $124,904 $15,000 35,00055,00075,00095,000115,000135,000 $15,00035,00055,00075,00095,000115,000135,000 $16,352 - $36,509 $31,209 - $54,649 $46,189 - $71,965 $15,00035,00055,00075,00095,000115,000135,000 $16,352 - $60,049 $15,00035,000 55,00075,00095,000115,000135,000 Standard Career Group 2 2 1 2 1 3 3 1 1 Student Pay Schedule PlusLocalMarket Supplement Supplement PlusLocalMarket PlusLocalMarket PlusLocalMarket 3

27. September 2006 Scientific & Engineering Career Group $25,195 - $60,049 $38,175 - $85,578 $74,608 - $124,904 Professional Pay Schedule Technician/Support Pay Schedule Supervisor/Manager Pay Schedule $31,209 - $60,049 $55,360 - $106,186 $74,608 - $124,904 $15,00035,00055,00075,00095,000115,000135,000 $15,00035,00055,00075,00095,000115,000135,000 $16,352 - $36,509 $31,209 - $54,649 $46,189 - $71,965 $62,740 - $85,578 $15,00035,00055,00075,00095,000115,000135,000 3 2 1 4 3 2 2 3 1 PlusLocalMarket Supplement Supplement PlusLocalMarket PlusLocalMarket 1

28. September 2006 $85,000 - $175,000 Medical Career Group Physician/Dentist Pay Schedule Professional Pay Schedule $25,195 - $60,049 $38,175 - $101,130 $74,608 - $124,904 Technician/Support Pay Schedule $16,352 - $36,509 $31,209 - $54,649 $46,189 - $71,965 $15,00035,00055,00075,00095,000115,000135,000 Supervisor/Manager Pay Schedule $25,00060,00095,000130,000165,000200,000225,000 $110,000 - $225,000 $31,209 - $60,049 $55,360 - $106,186 $77,793 - $124,904 $100,000 - $200,000 $25,00060,00095,000130,000$165,000200,000235,000 $15,00035,00055,00075,00095,000115,000135,000 $25,00060,00095,000130,000165,000200,000225,000 $15,00035,00055,00075,00095,000115,000135,000 3 1 2 3 2 1 1 2 4 3 3 2 PlusLocalMarket Supplement Supplement PlusLocalMarket PlusLocalMarket PlusLocalMarket

29. September 2006 $25,195 - $60,049 $38,175 - $85,578 $74,608 - $124,904 Investigative Pay Schedule Fire Protection Pay Schedule $15,00035,00055,00075,00095,000115,000135,000 $15,00035,00055,00075,00095,000115,000135,000 $16,352 - $36,509 $46,189 - $71,965 $62,740 - $101,130 $31,209 - $54,649 1 2 3 4 3 1 2 PlusLocalMarket Supplement Supplement PlusLocalMarket Investigative & Protective Services Career Group

30. September 2006 $16,352 - $36,509 Investigative & Protective Services Career Group (cont.) $31,209 - $54,649 Police/Security Guard Pay Schedule Supervisor/Manager Pay Schedule $31,209 - $60,049 $55,360 - $106,186 $15,00035,00055,00075,00095,000115,000135,000 $15,00035,00055,00075,00095,000115,000135,000 $77,793 - $124,904 3 1 2 2 1 PlusLocalMarket Supplement Supplement PlusLocalMarket

31. September 2006 Compensation Performance-Based Pay Annual pay raises or bonuses based on performance High-performing employees can get higher pay raises Employees must perform at “Valued Performance” (Level 3) or higher to get any increase Rate Range Increases Nation-wide salary adjustments, may vary by pay band Employees must perform at “Fair” (Level 2) or higher to get any increase Local Market Supplement Increases Similar but not identical to locality pay - addition to base pay Based on geographic or occupation market conditions In given area, can differ from one occupation to another Employees must perform at “Fair” (Level 2) or higher to get any increase Other Features Rate ranges and local market supplements are reviewed annually 6% minimum salary increase for promotions Eligibility for salary increase for reassignment/reduction in band Pay bands replace General Schedule

32. September 2006 What Constitutes Compensation + General Schedule + Bonuses ----------------------- Cash Awards Worldwide Base Rate = Adjusted Salary CONUS Locality Pay All GS employees in covered locality get same % Special Rate Supplement Based on occupation/ geographic locality OR = + NSPS Worldwide Base Rate Performance Based Bonuses ----------------------------------- Cash Awards + Performance Based Pay Adjustment Local Market Supplement Variable by career group, pay schedule, occupation, &/or pay band Adjusted Salary + Step Increases +

33. September 2006 Civilian Personnel Funding Allocations Title 5 Within-Grade Increases Quality-Step Increases Promotions Between Grades Chapter 45 Incentive Awards NSPS Performance-Based Payouts (Pay Pool) - Salary Increases - Bonuses Promotions Between Bands Reassignments Accelerated Compensation for Developmental Positions (ACDP) Extraordinary Pay Increases (EPI) Organizational Achievement Recognition (OAR) Chapter 45 Awards

34. September 2006 WGIs ** QSIs ** Promotions Annual Bonuses Portion of GPI *** SECDEF Decisions (Outside Pay Pool) Rate Range Adjustments * Local Market Supplement (LMS) * Chapter 45 Incentive Awards (Outside NSPS) Special Act On-the-Spot Time Off *Funded by annual January pay increase **Does not exist under NSPS ***Portion remaining after funding Rate Range Adjustments and LMS NOTE: - Organizations can add additional dollars for either salary increases, bonuses or both - Extraordinary Pay Increases (EPIs) and Organizational/Team Achievement Recognitions (OARs) are funded from other sources (NOT from pay pool) Performance-Based Pay (Inside Pay Pool) [may be Continuing and/or Bonus] Money histori -cally spent Pay Overview 1 23 Element

35. September 2006 Base Pay Increase Funding Floor Statutory requirement to not disadvantage employees Certified annually by Components to SecDef January 2007 => Not less than the amount historically spent* Full GPI used for rate range increases and LMS January 2008 => 2.26% across DoD GPI can split between rate range increases, LMS and pay pool funding January 2009 => By formula to be established by SecDef GPI can split between rate range increases, LMS and pay pool funding * Funds for base pay increase floor = Pay pool element 1 + Reassignment/salary increases + Salary increases from any ACDP, OAR and EPI * Funds for base pay increase floor = Pay pool element 1 + Reassignment/salary increases + Salary increases from any ACDP, OAR and EPI

36. September 2006 Pay Pool Funding Sources Pay Pool Fund $ Element 1 Fixed percentage DoD-wide / Component Minimum (%)* Element 2 Remaining portion of General Pay Increase set by DoD (%) Element 3 Annual bonuses Component discretion (%) (Total Element %) X (Total Base Salaries) * Derived from DoD-wide multi-year historical data and is imposed to protect civilian pay accounts and to meet the statutory requirement to NOT disadvantage employees.

37. September 2006 Lessons Learned Performance Management Refine strategic plan Develop and cascade performance goals and objectives Close performance appraisals 30 days before conversion Protect pay pool funds Communication Communicate often and clearly Use multi-media and employee engagement groups Allow employees to vent Training Take full advantage of training opportunities Use instructors with federal HR experience Partner with in-house trainers Senior leadership is critical

38. September 2006 Lessons Learned Program Management Allow sufficient time to plan and implement Use the readiness tool Involve stakeholders early Line Managers, Financial Managers, Public Affairs Officers, General Counsel, Human Resources experts, et al Avoid reorganizations, RIFs, or mass changes prior to conversion Records Management Start quality control and data correction early

39. September 2006 Alignment Matters The Core Align work with mission and/or organizational goals Communicate and understand how employee contributions tie to mission and organizational goals Acknowledge and reward performance Distinguish levels of performance so that those who are contributing are rewarded appropriately The Keys Relationships are clear and transparent Responsibility is clear and accepted Results are demonstrated and measurable The Experience – over 25 years in DoD Communication and training are critical Evaluation assures accountability Transformational change must happen at every level

40. September 2006 Training and Communication Training Leadership involvement sets the tone Establish expectations, make NSPS “real” Tailor to meet organizational needs Do not shortchange employees by thinking they will “get it” – organizational transformation takes time Training not a panacea – needs to be supported by other activities Communication Make communication a priority – be inclusive Open and frank discussions are critical Let people talk about how the change affects them Calibrate expectations

41. September 2006 Impact of DHS Court Decision Court of Appeals ruled in favor of unions on almost all significant issues: DHS regulations do not provide core framework for collective bargaining found in chapter 71 of title 5 DHS regulations cannot change role of the FLRA Court of Appeals ruled that appeals mitigation standard is not yet ripe for appeal While NSPS regulations are similar to DHS, there are statutory differences that may affect result of our appeal before the same court DHS and DoD cases do not involve the human resources elements DHS will not seek rehearings before the DC Circuit Court but reserves the decision whether to appeal to US Supreme Court

42. September 2006 Pay Pool Manager Training 2-1/2 day facilitated workshop Includes time for component specific planning session Target audience Pay pool managers and sub pay pool managers Trainers and facilitators Topics Dynamics, processes and procedures for effective management Dates Sites Number July 11 – 13Southbridge, MA90 July 25 – 27Rockville, MD225 August 8 – 10Palm Springs, CA200 August 15 – 17Southbridge, MA150

43. September 2006 Pay Pool Training Support Tools Brochure – Pay Pool Management at a Glance Available through component training offices On the NSPS web site Manager’s Notebook In development Participant and Instructor Guides Pay pool simulation data Pay Pool Automated Training Tool being developed