Good morning!

Thank you, Don Winstead (Acting Associate Director, Workforce Compensation and Performance Service) for that kind introduction. I appreciate so much the outstanding work that you and Doris Hausser (Assistant Director for Performance Compensation Systems Design) and the rest of Workforce Compensation and Performance Service staff have done on the Strategic Compensation Initiative and in putting on this exciting conference. You are really moving the ball forward.

And thank all of you for being here today and for everything youre doing to make sure that we have the very best people working in government. Were here this week to talk about the tools available to you to do that important job, both using the flexibilities that you currently have and looking ahead to how we are going to modernize our compensation system to help you do your jobs even better. Our mission is to make the federal government the leader other employers look to for best practices in recruiting, rewarding and retaining talented workers to restore the image of public service as a noble calling that attracts the best and the brightest.

But before delving into strategic compensation, lets get down to what you really want to know who is this lady running OPM, what is she all about, and whats it going to mean to me and my job?

Let me start with two fundamentals. I am about doing. I came to this position, as I have every job Ive held, to make a difference. I dont mind making waves if it moves us closer to our goal. And I dont accept "cant" as an option. My approach to any challenge I undertake is "Yes, we can."

The second thing you should know is that I mean what I say. Any commitment, any promise I make, you can take it to the bank. And I will make this pledge to you here today: As Director of the Office of Personnel Management, I will be an advocate for the Human Resources community across the federal government. I firmly believe that the best ideas come from the practitioners, so I want to hear from you, and I will be the champion for good human resources ideas. I am here to help you remove roadblocks in your agencies that keep you from hiring and keeping the best people. And if OPM is the roadblock, let me know and we will fix it.

My passion on this front is not entirely coincidental. Human resources management first brought me here to Washington nearly twenty years ago, just as it has brought me back today as Director of the Office of Personnel Management for the Bush-Cheney team.

My work in the private sector includes a corporation renowned for its employee programs. At C&P Telephone, recently BellAtlantic and now known as Verizon, I learned many of the principles of human resources management that have shaped my work in the 30 years since then.

I learned to retain and promote individuals based upon merit and constantly offered employees the opportunity to improve themselves and their career prospects through training, mentoring and education. And it was there that I learned about the critical and differing roles of labor and management.

In other positions in the private and non-profit sectors, I learned many of the systems that large corporations utilize to manage employees effectively, including performance reviews, benefit package determination, bonuses, and incentive pay, and termination policies. When developed and implemented properly, these systems offer not only protection for employees and the employer, but also the capacity to bring about positive and lasting change for the organization.

In the public sector, my personnel management experiences involving both civil service and political appointees began in 1989 at the U.S. Department of Health and Human Services and later at the White House Office of National Drug Control Policy. In 1994, I was selected to serve as the Secretary of Health and Human Resources for the Commonwealth of Virginia, and assumed responsibility for the management policies affecting over 19,000 full-time career employees and thousands of part-time workers.

In each of these positions, Ive been involved with major systematic change, budget restrictions, and other operational and political challenges. Like many who had not had the opportunity to work with government employees, I was skeptical, but they quickly earned my trust and respect. Without exception, my confidence in the quality and commitment of public servants both career and non-career employees was rewarded, and we were able to meet these challenges in a positive and successful manner.

I have learned first-hand contrary to what some believe to be the case a lesson that is critical for the Director of the Office of Personnel Management to understand. The vast majority of career employees are true public servants talented individuals who have consciously chosen to use their work and skills on behalf of their nation, often at financial or other sacrifice to themselves and their families. They are selfless, willing to work long hours with little recognition, committed to excellence in both product and service, and, if led effectively, capable of unlimited creativity and resourcefulness.

But those of us in this room know all too well that we face challenges keeping those good employees and attracting the best and the brightest of a new generation into government service. Now, lets talk.

As I know you are aware, the staff at OPM has worked hard at trying to make the General Schedule Classification System as responsive to todays needs as possible. As a general rule, however, I believe that anything older than I am probably needs to be re-examined to see whether it still provides a benefit thats worth its cost.

The idea that the civil service is merely an undifferentiated workforce of low-graded clerks intent on a 30-year career has got to go, and so do the systems that were designed to support such notions. The work has changed and the worker has changed, and we cant continue paying people in essentially the same way we did when the system was created in the 1940s.

Many of the people we need expect to work for several employers during their lifetime not because they believe the job market is too unstable to be able to depend on long careers with a single company. Rather, they truly value change and the chance to try new endeavors, to try their skills in new arenas. They want their personal contributions to be recognized with immediate rewards, not some long-term promise of better days in their golden years.

Cycle times for developing new products, programs, and technologies are getting shorter all the time. That means the systems for attracting, selecting, managing and rewarding and retaining people doing the governments work have to be nimble. We must be able to react quickly as needed skills change. We have to be able to compete in "hot" labor markets.

We can and we must establish systems for the federal government that respond better to 21^st Century organizational demands and employee concerns. Todays government especially our Presidents e-Government produces its results through knowledge workers. Employees dont manufacture things or push paper (at least we hope they dont); they use their talents and brains to deliver results the American people want and expect.

I see this as a time of incredible opportunity. Never before have we had such a critical mass committed to reform that will help government adapt to our rapidly changing world. The Presidents Management Council has been reestablished and we are meeting regularly, providing a community of management leadership across the departments and agencies of government. And Im working strategically with Mitch Daniels at OMB. Were working closely together for the best interests of the federal worker.

Leadership begins at the top with the first President to take office with an advanced degree in management. You may have listened to the Presidents radio address this weekend. Because he considers it such a priority, he used this time to introduce his management agenda for improving government performance to the American people. Hes put together a coherent and coordinated plan a plan that includes as a key point the strategic management of human capital.

The Presidents leadership direction has been clear and consistent: deliver a government that is citizen-centered, results-oriented, and market-based. In other words, a government that is focused on serving the people, not looking at the people as the servants of government. A government that produces results for the people and can be held accountable for progress, not process. And a government that welcomes competition, innovation and choice.

Key to achieving the Presidents vision are the people who serve in government. Corporate management consultants will tell you that the quality of any organizations employees is the single most important factor in determining its success and effectiveness. The federal government is no exception.

The strategic management of human capital requires the strategic use of compensation. Unfortunately, our current system doesnt support strategy very well. We cannot afford to let more time pass while appointing endless commissions to study the problem to death. We know the federal governments compensation system is seriously outdated. It needs attention badly and it needs attention now.

The call for changing the way our Civil Service systems work has been coming from you in the agencies, from employees, from the Hill, from a range of stakeholders in the federal community, from observers in academia and the nonprofit sector, and perhaps, most importantly, from job applicants themselves.

I join that call and that chorus that believes its time to shift from a focus on personnel administration to a focus on human capital management. Clearly, a key feature of effective human capital management is the way compensation is designed and delivered.

When we examine compensation in terms of equities, the current pay and classification system is dangerously out of balance.

We are all familiar with internal equity. Thats really just a fancy name for how pay relates to other jobs within an organization. Our system does a reasonably good job of maintaining internal equity its what the whole classification system is all about.

But while basic internal consistency is important, internal equity is only one part of the equation. High-performing organizations recognize that individual equity also must be part of a successful compensation system.

• In todays knowledge-based economy, the skills, talent and motivation of the individual have a huge impact on results.
• Integrating employee performance management systems with agencies program performance management and budgeting systems is part of making government results-oriented.
• Yes, individual equity means making distinctions among performers, and I recognize that makes some uneasy. But theres an awful lot of rigidity in a system that makes a manager give exactly the same sized pay increase called a "wiggy," right? to the employee whos doing a really terrific job and the employee whos just sort of coasting.

Developing the incentives necessary to attract, reward and retain experienced and high-performing men and women is essential to preventing further brain drain from the federal workforce.

The third kind of compensation equity is external equity, which looks at how pay relates to the labor market outside the organization. With the explosion of information about what jobs are paying and what people think jobs are paying, were much more attuned to external equity than we used to be.

The government made a profound pay system change designed to address at least one aspect of external equity when it passed the Federal Employees Pay Comparability Act of 1990 (FEPCA).

• We have made significant headway to close the "pay gap".
• We have gained experience using different local pay schedules. Federal employees in New York City get paid more than federal workers in Oklahoma City because other employers in the Big Apple pay higher salaries. Its easy to forget how radical that idea was 10 years ago.

Even more important, FEPCA brought many of the new pay flexibilities, and federal managers have been learning to use them to deal more strategically with specific recruitment and retention situations.

Weve begun to trust our managers with flexibilities like student loan repayment and other forms of competitive rewards the federal government can offer to its employees and potential employees, including child care subsidies, premium conversion, and transit subsidies.

For me, our experiences with FEPCA and other flexibilities confirms that we should be treating the excellent managers we have in government like the competent people they are. If we give you the responsibility of recruiting and retaining outstanding men and women into public service, its time we trust you to use your good judgment and equip you with the tools and flexibility you need to get the job done.

While doing this, we must acknowledge and maintain the trust that we have been given by the American people to oversee a fair and diverse workforce.

The Presidents Management Agenda will help us move to the next step. The "Freedom to Manage" initiative is designed to remove some of the barriers to efficient management and allow even better use of the flexibilities currently in place to acquire and develop talent and leadership in the short term. It begins the process of putting in place human capital strategies specifically linked to organizational mission, vision, core values, goals and objectives.

Some of you have already been doing just that, and doing it very successfully. Indeed, we have some outstanding examples here with us today whose effective employee performance management supports their organizational goals and contributes to overall agency performance. Youll learn more about them when we honor them later this morning with our PILLAR award.

In the longer term, we need to complete the process of Civil Service modernization. We must put in place a system that truly balances the equities for government workers internal equity (remember, thats how pay relates to other jobs within an organization), individual equity (how pay reflects individual performance and results), and external equity (how pay relates to the outside labor market). And we must integrate our personnel and performance measures so we can hold managers and employees accountable for real results.

Will it be easy? Of course not. And well face many critics along the way. People who will point at you and me and resist change because, even though the old system is outdated, they fear change. But I look to the words of Theodore Roosevelt, that first great reformer of the Civil Service.

"It is not the critic who counts, not the man who points out how the strong man stumbled or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena who strives valiantlyand spends himself in a worthy cause, who at best knows achievement and who at the worst, if he fails, at least he fails while daring greatly so that his place shall never be with those cold and timid souls who know neither victory nor defeat."

Please join me. I will work with all interested parties, as I have already been doing, but let me be clear. I am in the arena to do something about compensation in the federal government to bring the federal governments pay, classification and performance systems, its benefits, and its very recruitment and hiring practices into the 21^st Century.

There is an incredible Human Capital Opportunity if we equip you all and other federal managers and human resources professionals with the tools and flexibilities you need. OPM is going to be the center of the action, and I look forward to working with all of you to make our government the very best because the very best people work there.

Thank you.