Proposed Personnel Management Demonstration Project; Pay For Applied Skills System; Department of Veterans Affairs (VA)

SUMMARY: Title VI of the Civil Service Reform Act, 5 U.S.C. 4703,

authorizes the Office of Personnel Management (OPM) to conduct

demonstration projects that experiment with new and different personnel

management concepts to determine whether such changes in personnel

policy or procedures would result in improved Federal personnel

management.

VA is proposing one demonstration project to initially cover two

Veterans Benefits Regional Offices: New York and Detroit. Additional

Regional Offices may be added during the duration of the project.

DATES: To be considered, written comments must be submitted on or

before February 3, 1997; public hearings will be scheduled as follows:

1. Wednesday, January 8, 1997, 10:00 a.m. in New York, New York,

2. Wednesday, January 15, 1997, 10:00 a.m. in Detroit, Michigan. At

the time of the hearings, interested persons or organizations may

present their written or oral comments on the proposed demonstration

project. The hearings will be informal. However, anyone wishing to

testify should contact the person listed under FOR FURTHER INFORMATION

CONTACT, and state the hearing location, so that OPM can plan the

hearings and provide sufficient time for all interested persons and

organizations to be heard. Priority will be given to those on the

schedule, with others speaking in any remaining available time. Each

speaker's presentation will be limited to ten minutes. Written comments

may be submitted to supplement oral testimony during the public comment

period.

ADDRESSES: Comments may be mailed to Joan Jorgenson, U.S. Office of

Personnel Management, 1900 E. Street, NW, Room 7460, Washington, DC

20415; public hearings will be held at the following locations:

1. New York--Department of Veterans Affairs, Veterans Benefits

Administration (VBA), New York Regional Office, Room 321, 245 W.

Houston Street, New York, New York,

2. Detroit--Department of Veterans Affairs, VBA, Detroit Regional

Office, Patrick V. McNamara Federal Building, 477 Michigan Avenue, Room

1194, Detroit, Michigan.

FOR FURTHER INFORMATION CONTACT: (1) On proposed demonstration project:

Rita Kowalski or Veronica Wales, Veterans Benefits Administration

Regional Office, 245 W. Houston Street, New York, New York, 10014, 212-

807-3050; (2) On proposed demonstration project and public hearings:

Joan Jorgenson, U.S. Office of Personnel Management, 1900 E Street, NW,

Room 7460, Washington, DC 20415, 202-606-1315.

SUPPLEMENTARY INFORMATION: The proposed project involves replacement of

the classification and General Schedule pay systems with a compensation

system which includes pay for applied skills and variable pay. It will

also emphasize organizational and team performance instead of

individual performance, and learning.

Dated: November 12, 1996.

Office of Personnel Management.

James B. King,

Director.

Table of Contents

I. Executive Summary

II. Introduction

A. Purpose

B. Problems with the Present System

C. Changes Required/Expected Benefits

D. Participating Organizations

E. Participating Employees

F. Union Involvement

G. Project Design

III. Personnel System Changes

A. The Human Resource Process

B. Entrance Stage

C. Maintenance and Support Stage

D. Exit Stage

IV. Training

V. Conversion

A. Conversion of Employees into the Demonstration Project

B. Conversion of Employees out of the Demonstration Project

C. Skill Block/Grade Conversion Table

VI. Project Duration

VII. Evaluation Plan

A. Introduction

B. General Methodology

C. Three Phase Methodology

VIII. Demonstration Project Costs

A. Budget Strategy

B. Step Buy-ins

C. Cost Controls

IX. Required Waivers to Law and Regulation

I. Executive Summary

The project was designed by the New York Regional Office (NYRO),

Veterans Benefits Administration, with the participation of the

Department of Veterans Affairs (VA), the Office of Personnel Management

(OPM) and the American Federation of Government Employees (AFGE). The

purpose of the project is to continue the organizational transformation

already in progress and fundamentally change the human resource process

so that the systems in the process focus upon the customers. The

project focuses on three stages of the Human Resource Process: (a) the

Entrance Stage that brings employees into the organization and

introduces them to its mission, vision, values, and culture; (b) the

Maintenance and Support Stage that includes everything that sustains,

develops, and focuses employees upon serving veterans and their

families and meeting its organizational outcome measures; and, (c) the

Exit Stage that deals with issues affecting employees leaving the

organization. The project will also test the effectiveness of skills-

based pay on the organization's ability to meet its organizational

goals and as a means of compensating employees for the skills and

competencies that the organization needs and that they acquire,

develop, and use. The demonstration project will be phased in at both

the New York and Detroit Regional Offices. The NYRO will start with its

Veterans Benefits and Services Business Line where most of its

reengineering effort has taken place. The Detroit Regional Office will

also begin in its Veterans Benefits and Services Business Line.

Additional business lines will be added as they are reengineered during

the course of the demonstration project.

II. Introduction

A. Purpose

The purpose of the project is to improve the delivery of benefits

and services provided to VA's unique customers--veterans and their

families; to provide the best value to American taxpayers; and to

create a human resources system that enables employees to develop and

apply the skills and competencies needed to better serve their

customers. This improved service will be provided by self-directed work

teams whose members are compensated based on the skills and

competencies they acquire, develop, and use which support the goals and

mission of the New York and Detroit Veterans Benefits Regional Offices.

B. Problems With the Present System

The Veterans Benefits Administration (VBA), a part of the

Department of Veterans Affairs, provides benefits and services to

veterans and their families. VBA has encouraged its Regional Offices to

actively transform the way they do business and is now requiring them

to use core organizational outcome measures to determine if they are

[[Page 58943]]

successful. The Regional Offices in New York and Detroit are involved

in activities such as Total Quality Management (TQM), reengineering and

organizational system design that focus on improving service to

veterans and their families. Both Regional Offices have reengineered

and streamlined their processes to emphasize the customer and provide

faster turn-around of veterans claims. The new emphasis on customer

service and organizational performance are not fully supported by the

existing human resource systems. The hierarchical nature and physical

structure of the existing General Schedule compensation and

classification systems do not provide the flexibility and adaptability

needed to move the Regional Offices forward in their reengineering

process. The existing structures do not provide managers with the

flexibility they need to structure teams so that they can function most

effectively and they do not encourage employees to acquire a broader

base of skills and competencies needed by the organization in order to

provide one-stop shopping to the veteran customer and family and to

address backlogs in benefit claims processing.

C. Changes Required/Expected Benefits

The VA Pay for Applied Skills Demonstration Project continues the

extensive reengineering of work and structural systems already

accomplished at the NYRO as a National Performance Review (NPR)

reinvention lab and the organizational outcome measures developed and

implemented at the NYRO as a Government Performance and Results Act

(GPRA) pilot site. This project, since it is closely dependent upon the

organizational outcome measures as defined by GPRA, will align human

resource systems to business needs; design and test a human resource

process that will support an organization reengineered around the

customer; assess a human resource system that supports employee

accountability, growth and ownership of organizational outcomes; and,

provide demonstration project participants with the opportunity to test

systems that meet project principles and operating guidelines, overall

outcome measures, and mission requirements and customer needs of the

organizations involved.

In addition to the expected benefits mentioned above, the following

key principles are critical to the VA Pay for Applied Skills

Demonstration Project: (a) It is important for employees to continually

focus upon the needs of veterans and their families; (b) Organizational

goals help employees and the entire organization to recognize what is

important and to know when they are successful; (c) The organizational

outcome measures will define the types of human resource systems put

into place, since they are the touchstone for all Regional Office

systems; (d) The demonstration project will show how the organizational

outcome measures that are envisioned in GPRA can help define human

resource systems; (e) When developing mechanisms for monitoring

organizational outcome measures, it is essential to bring the outcome

measures to the employee's ``line of sight'' and at a level where each

employee knows that he or she will be able to affect these outcomes;

(f) While the Organizational Performance Management System and the

Compensation System are key components of the demonstration project,

these systems cannot be put into place alone. They have a dramatic

effect on other systems within the Regional Office; (g) The Merit

System Principles will be inherent in every aspect of the reengineered

human resource process and systems; (h) Any policies and procedures

developed will be streamlined, customer-focused, and designed so that

authority is at the lowest possible level; (i) Policies and procedures

will be developed with the belief that people want to do the right

thing and that the systems developed will not be designed with the

exception in mind; (j) The demonstration project will use the

organizational outcome measures, as defined by GPRA, to help evaluate

its effectiveness; (k) Policies and procedures developed will maintain

budget discipline, be cost-effective and keep administrative costs

down, since the needs of the American taxpayer must also be considered;

(l) Employees and the union will be involved in developing human

resource systems, since these systems exist because employees exist;

(m) Customers and stakeholders may be involved in the project for ideas

affecting design, operation or assessment; (n) Teams, or organizational

units, do not compete against each other. Each team, or organizational

component, competes against accomplishing the organizational outcome

measures; (o) Employees will be paid based upon the achievement of

organizational goals and the development and application of the skills

needed to meet those goals; and (p) The exploration of new ideas,

creativity, flexibility and continuous improvement is a project norm.

Ideas and options will be tested with the understanding that if

something does not work, the organization will have learned from the

experience and be willing to implement changes based on the experience.

D. Participating Organizations

The two Veterans Affairs offices initially participating in the

project are:

VA Regional Office, New York, New York

VA Regional Office, Detroit, Michigan

E. Participating Employees

The demonstration project in the Department of Veterans Affairs,

Veterans Benefits Administration, will include all General Schedule

employees in the Regional Offices in Detroit and New York. Each

organization will phase in the project to meet its particular needs.

Each organization will have the option of covering their entire

organization and of phasing in the project during the initial three

year period of the five year demonstration project.

For example, since NYRO is both an NPR reinvention lab and a GPRA

pilot site, it is farther along in its planning for demonstration

project implementation. In the NYRO, the demonstration project will

cover the entire office and will incorporate the total human resource

system described in this proposal. The project will be phased in, since

the NYRO plans to continue its reengineering effort to include the

remaining business lines and support activities. The NYRO will start

with the Veterans Benefits and Services Business Line where most of the

reengineering has taken place; however, the NYRO plans to reengineer

its field and support elements and will incorporate this work into the

demonstration project. It will also expand coverage to Veterans Homes

and the Veterans Jobs Lines after the reengineering effort in these

areas are completed and will include leadership positions covered by

the General Schedule under the project. Figure 1 lists the series and

positions currently in the business lines.

Figure 1: Series by Business Lines

----------------------------------------------------------------------------------------------------------------

Series Title Benefits Homes Jobs Support

----------------------------------------------------------------------------------------------------------------

180.... Counseling Psychologist............................ ........... ........... 4 ...........

[[Page 58944]]

201.... Personnel Management Specialist/Officer............ ........... ........... ........... 4

203.... Personnel Assistant................................ ........... ........... ........... 4

303.... Program Assistant.................................. 4 4 4 4

303.... Program Support Clerk.............................. 4n 4 4 ...........

305.... File Clerk......................................... ........... 4 ........... 4

305.... Mail Clerk......................................... ........... ........... ........... 4

318.... Secretary (OA) (Stenography/OA).................... 4n 4 4 4

322.... Clerk-Typist....................................... 4n ........... ........... 4

326.... Office Automation Clerk............................ ........... ........... 4 ...........

334.... Computer Specialist................................ ........... ........... ........... 4

340.... Director/Assistant Director........................ ........... ........... ........... 4

341.... Administrative Officer............................. ........... ........... ........... 4

342.... Support Services Specialist/Supervisor............. ........... ........... ........... 4

343.... Program Analyst.................................... 4n 4 ........... 4

344.... Management Assistant (Analysis).................... ........... ........... ........... 4

350.... Copier/Duplicator Equipment Operator............... ........... ........... ........... 4

392.... Telecommunications Assistant....................... ........... ........... ........... 4

503.... Accounts Receivable Assistant...................... ........... ........... ........... 4

503.... Fiscal Accounts Clerk/Supervisor................... ........... ........... ........... 4

510.... Accountant......................................... ........... ........... ........... 4

511.... Auditor............................................ ........... ........... ........... 4

525.... Accounting Technician.............................. ........... ........... ........... 4

530.... Cashier............................................ ........... ........... ........... 4

540.... Voucher Examiner................................... ........... ........... ........... 4

561.... Budget Assistant................................... ........... ........... ........... 4

602.... Medical Officer (GS--Disability. Evaluation)....... 4 ........... ........... ...........

930.... Hearing Officer.................................... 4n ........... ........... ...........

962.... Contact Representative............................. 4nH

963.... Legal Instruments Examiner (Fiduciary Accounts).... 4s ........... ........... ...........

996.... Veterans Claims Examiner (Case Manager)............ 4 ........... ........... ...........

998.... Claims Clerk (Case Technician)..................... 4 ........... ........... ...........

1105... Purchasing Agent................................... ........... ........... ........... 4

1165... Loan Assistant (Realty)/Specialist................. ........... 4 ........... ...........

1170... Realty Specialist.................................. ........... 4 ........... ...........

1171... Appraiser.......................................... ........... 4 ........... ...........

1715... Vocational Rehabilitation Specialist............... ........... ........... 4 ...........

1801... Education Compliance Survey Specialist............. 4s ........... ........... ...........

1801... Education Liaison Representative................... 4s ........... ........... ...........

1801... Field Section Supervisor........................... 4s ........... ........... ...........

2005... Supply Clerk....................................... ........... ........... ........... ...........

----------------------------------------------------------------------------------------------------------------

LEGEND

4=Found in Business Line.

5=Field Position in VBSD.

H=Medical Center/Outreach Field position in VBSD.

n=Front office position in VBSD.

The NYRO is part of the Veterans Benefits Administration and has

four business lines--Veterans Benefits, Veterans Homes, Veterans Jobs,

and Support. It serves 1.2 million veterans in 31 counties and

distributes over $52 million in benefits every month. Its operating

budget is $17 million.

As of September 30, 1995, the NYRO employed 340 people in 36

occupational series. Their grades ranged from GS-3 to GS-15 while one

position was in the Senior Executive Service (SES) (See Figure 1). Of

these employees, 33.5% were veterans. Disabled veterans accounted for

10% of the veterans employed; Vietnam veterans accounted for 20.4% of

the veterans employed.

In the NYRO, 48.7% of the employees were women, 12.8% were people

with disabilities and 53.7% were minorities. The minority

representation was: 36.5% African Americans; 14.6% Hispanics; 2.3%

Asian Pacific Islanders; and .3% Native Americans. The minority

representation is significant, since it reflects the veteran population

in New York City. The following chart depicts the number of employees

in each series at the VA New York Regional Office as of September 30,

1995.

Figure 2: NYRO Series Distribution 9/30/95

------------------------------------------------------------------------

Number Series Title

------------------------------------------------------------------------

9...... 180 COUNSELING PSYCHOLOGIST

4...... 201 PERSONNEL MANAGEMENT SPEC./OFFICER

1...... 203 PERSONNEL ASSISTANT

12..... 303 PROGRAM SUPPORT CLERK/ASSISTANT

10..... 305 FILE CLERK/MAIL CLERK

318 SECRETARY (OA) (STENOGRAPHY/OA)

322 CLERK-TYPIST

326 OFFICE AUTOMATION CLERK

7...... 334 COMPUTER SPECIALIST

2...... 340 DIRECTOR/ASSISTANT DIRECTOR

1...... 341 ADMINISTRATIVE OFFICER

2...... 342 SUPPORT SERVICES SPECIALIST/SUPERVISOR

4...... 343 PROGRAM ANALYST

[[Page 58945]]

3...... 344 MANAGEMENT ASSISTANT (ANALYSIS)

1...... 350 COPIER/DUPLICATOR EQUIPMENT OPERATOR

1...... 392 TELECOMMUNICATIONS ASSISTANT

3...... 503 ACCOUNTS RECEIVABLE ASSISTANT

3...... 503 FISCAL ACCOUNTS CLERK/SUPERVISOR

2...... 510 ACCOUNTANT

1...... 511 AUDITOR

1...... 525 ACCOUNTING TECHNICIAN

1...... 530 CASHIER

1...... 540 VOUCHER EXAMINER

1...... 561 BUDGET ASSISTANT

2...... 602 MED OFFICER (GS-DIS EVAL)

6...... 930 HEARING OFFICER

9...... 962 CONTACT REPRESENTATIVE

5...... 963 LEGAL INST EXAMINER (FID ACCTS)

143.... 996 VETERANS CLAIMS EXAMINER

58..... 998 CLAIMS CLERK

1...... 1105 PURCHASING AGENT

9...... 1165 LOAN ASSISTANT/SPECIALIST (REALTY)

3...... 1170 REALTY SPECIALIST

4...... 1171 APPRAISER

3...... 1715 VOCATIONAL REHABILITATION SPECIALIST

2...... 1801 ED COMPLIANCE SURVEY SPECIALIST

1...... 1801 EDUCATION LIAISON REPRESENTATIVE

------------------------------------------------------------------------

The Detroit Regional Office is also part of the Veterans Benefits

Administration and has three primary business lines--veterans benefits,

home loans and job rehabilitations--as well as a support activity. The

Detroit Regional Office serves over .95 million veterans in the State

of Michigan and distributes over $38.6 billion in benefits every month.

The operating budget is $11.8 billion.

As of September 30, 1995, the Detroit Regional Office employed 269

people in 35 occupational series. Their grades ranged from GS-3 to GS-

15 with one position in the Senior Executive Service. Of these 269

employees, 34.8% were veterans. Disabled veterans accounted for 10.6%

of all employees or 30.5% of all veteran employees; Vietnam veterans

accounted for 28.2% of all employees and 81.1% of the veterans

employed.

In the Detroit Regional Office, 54.7% of employees are women.

Eleven percent are people with disabilities and 50.3% are minorities.

The following ethnic distribution existed: African Americans--48.7%;

Hispanics--.08%; Asian Pacific Islanders--.04%; Native Americans--.04%.

The minority representation reflects the population in the Detroit

metropolitan area. The following chart depicts the number of employees

in each series at the VA Detroit Regional Office as of September 30,

1995.

Figure 3: VA Detroit Regional Office Series Distribution 9/30/95

------------------------------------------------------------------------

Number Series Title

------------------------------------------------------------------------

5...... 180 COUNSELING PSYCHOLOGIST.

1...... 201 PERSONNEL OFFICER.

1...... 235 EMPLOYEE DEVELOPMENT SPECIALISTS.

1...... 301 OFFICE SYSTEMS MANAGER.

8...... 303 CLERK/PROG SPT CLK/PROG SPT ASSISTANT.

3...... 303 PROG SPT CLK (OA)/PROG SPT ASSIST (OA).

12..... 305 FILE CLERK/MAIL CLERK.

7...... 318 SECRETARY (OA).

13..... 326 OFFICE AUTOMATION CLERK/ASSISTANT.

2...... 334 COMPUTER SPECIALIST.

2...... 340 DIRECTOR/ASSISTANT DIRECTOR.

3...... 343 MANAGEMENT ANALYST.

2...... 357 CODING CLERK.

2...... 501 FINANCE OFFICER/ASSIST FINANCE OFFICER.

3...... 503 ACCOUNTS RECEIVABLE ASSISTANT.

3...... 503 FISCAL ACCOUNTS CLERK.

2...... 510 ACCOUNTANT.

6...... 525 ACCOUNTING TECHNICIAN.

1...... 530 TELLER.

1...... 561 BUDGET ASSISTANT (OA).

1...... 602 MED OFFICER (GS-DIS EVAL).

9...... 905 GENERAL ATTY (VETERANS).

2...... 930 HEARING OFFICER.

1...... 950 PARALEGAL SPECIALIST.

34..... 962 CONTACT REPRESENTATIVE.

5...... 963 LEGAL INST EXAMINER (FID ACCTS).

2...... 986 LEGAL CLERK/ASSISTANT (OA).

1...... 990 CLAIMS EXAMINER.

74..... 996 VETERANS CLAIMS EXAMINER.

16..... 998 CLAIMS CLERK.

19..... 1165 LOAN ASSISTANT/SPECIALIST (REALTY).

1...... 1170 REALTY OFFICER.

5...... 1170 REALTY SPECIALIST.

4...... 1171 APPRAISER.

6...... 1715 VOCATIONAL REHABILITATION SPECIALIST.

2...... 1801 ED COMPLIANCE SURVEY SPECIALIST.

9...... 1801 FIELD EXAMINER.

2...... 2005 SUPPLY TECHNICIAN.

------------------------------------------------------------------------

(F) Union Involvement

The American Federation of Government Employees (AFGE) Local 138

represents employees at the Detroit Regional Office, while AFGE Local

1151 represents employees at the New York Regional Office. The Regional

Offices are continuing to fulfill their obligations to consult and/or

negotiate with the AFGE Locals in accordance with 5 U.S.C. 4703(f) and

7117. The participation with the Locals is within the spirit and intent

of Executive Order 12871.

AFGE Local 1151 in the New York Regional Office has been involved

with and has participated in the development of the project since its

inception. As the Detroit Regional Office has become part of the

project, Local 138 has also played an active role. The unions are an

integral part of the demonstration project and will be full partners in

the project.

The demonstration project will have a steering committee. In line

with the Partnership Agreement, the unions will be represented on the

Policy Board, local steering committees and any standing committees

involved in the demonstration project.

G. Project Design

The demonstration project request is the result of a change process

that the NYRO began 5 years ago. The NYRO is an example of the type of

transformation process that VBA has encouraged. Furthermore, since it

has been designated as a NPR reinvention lab and as a GPRA pilot site,

VBA has used the NYRO to develop and test new ways of doing work and

providing service to veterans and their families. Five distinct phases

mark the NYRO's change process: Total Quality Management, the White

House Study, NPR, GPRA, and the Interim Compensation Committee. Each

phase is described below.

(a) Total Quality Management (TQM) (1990-92)

The following excerpt from ``REINVENTION: History and

[[Page 58946]]

Guidebook'' explains what the quality efforts had done for the NYRO by

1992.

They had trained over 83% of their workforce in the principles and

mechanics of quality improvement and had established over 27 quality

improvement teams to study and enhance their services. A cultural shift

moved prevailing attitudes from ``It's always done this way.'' to ``Why

do we do things this way?'' Moreover, supervisors and managers had

begun to change their leadership behavior from a ``command and control

style'' to a more facilitating and coaching approach.* * * Employees

kept up with a 23% increase in workload caused by a rise in the number

of rules and procedures due to recent Court of Veterans Appeals (COVA)

decisions and the results of the Omnibus Budget and Reconciliation Act.

While the NYRO saw improvements, COVA and the Omnibus

Reconciliation Act had complicated the claims process. It now took

almost twice the time to process claims. Something more than

incremental improvement was needed if the NYRO wanted to continue to

improve service to its customers--veterans and their families.

(b) The White House Study (1992-1993)

When the White House in conjunction with the Office of Management

and Budget (OMB) began a special, three-year study to see how well

quality improvement efforts could improve customer service, the

Department of Veterans Affairs selected the NYRO as one of the

participants. For this study, the NYRO decided to reengineer claims

processing. The NYRO used an Organizational Systems Design (OSD) Model

for its redesign effort. This model (Figure 4) was a ``framework'' that

helped organize the NYRO's thinking about how its organization

functioned. The model helped the NYRO:

--Focus upon desired outcomes, or results;

--Recognize the impact of the external environment upon the

organization;

--Understand the choices it could make about its mission, guiding

principles, influence strategies, goals and objectives and

organizational systems.

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The design process required the NYRO to align all its

organizational choices to its outcomes. The NYRO began with its work

processes.

After one year of looking at technical and structural systems, it

fundamentally redesigned the way it did its work with a case manager

approach to claims processing that used self-directed work teams. It

took 25% of its workload and established the Prototype Unit in 1993.

(c) National Performance Review (1993 to the present)

In 1993, Vice President Al Gore began his work with the NPR. The

Department of Veterans Affairs nominated and the NYRO was designated an

NPR reinvention lab.

The NYRO had begun its work by reviewing its technical and

structural systems. On the basis of its analysis, it redesigned its

workflow and its structure and decided to use self-directed work teams

and a case manager approach to claims processing. On March 11, 1994,

Vice President Al Gore presented the first National Performance Review

Hammer Award to the New York Regional Office. The NYRO Reinvention Lab

received the award for its efforts in improving customer service. The

Hammer Award recognized a measurable improvement in customer service.

The national standard for customer service required Regional Offices to

see veterans in 30 minutes; the waiting time had dropped to under 3

minutes.

(d) Government Performance and Results Act (GPRA)

The OSD model focused the NYRO upon outcomes and measures. As a

result when VA began looking for a pilot site, the NYRO was a logical

choice. The NYRO was committed to the OSD model and wanted its outcome

measures to tell the organization how well it was serving veterans.

Becoming a GPRA pilot site enabled the NYRO to focus upon its

information and measurement systems. As a result, as soon as the NYRO

had completed reengineering its technical and structural systems, it

began a one year effort to develop new organizational performance

measures. The old information and measurement systems had VA Central

Office, OMB, Congress and the General Accounting Office (GAO) among its

stakeholders. The new information and measurement system added

customers (veterans and their families), employees, and taxpayers to

the list of stakeholders. The new core measures are:

Speed, a modification of the old Timeliness standard,

Accuracy, a modification of the old Quality measure,

Customer-based measures, a new measure supporting the Secretary's

Putting

``Veterans First'' initiative and the National Performance Review,

Employee development measures, a new measure supporting

organizational learning, and

``Cost-per-claim,'' a unit cost measure that replaced Productivity.

The NYRO considers all measures in its ``Balanced Scorecard''

approach and will use them to drive Regional Office planning. (See

Appendix A for a detailed description of the measures.) The ``Balanced

Scorecard'' has become the focal point of assessing how well the NYRO

is serving veterans and their families. The core measures found in the

scorecard drive the station's performance. Furthermore, VBA has adopted

the core measures for nationwide use.

The core measures help define the business and clearly explain what

the NYRO feels is important. This new way of doing business emphasized

for the NYRO why the human resource systems needed to be aligned with

the organization's new measurement system. The lessons learned in the

NYRO GPRA Pilot Program showed that the current pay system had no

relationship to organizational performance. The current compensation

system was position-based and did not fit an organization where

teamwork, learning new skills and collaboration were essential.

(e) The Interim Compensation Committee

As part of the reengineering effort, the NYRO had combined numerous

positions into two: Case Manager and Case Technician. While this change

was made, issues involving advancement, growth and development in the

new work environment had not been addressed. The NYRO formed the

Interim Compensation Committee (ICC) that included representatives from

the teams and the union to look at this problem. The Committee

developed an Interim Compensation System that established core skills,

skill blocks and the combination of skill blocks that the team members

would need to demonstrate before being promoted. They also had

developed a certification procedure for promotion.

The ICC's work was recognized in May 1995 when the committee

received a National Performance Review Hammer Award. What is most

significant about this effort is that it was driven by the

organization's needs and is so clearly tied to the NYRO's

organizational outcome measures.

The ICC results also made it very clear that the NYRO needed to

request demonstration status from OPM to align its human resource

system with its organizational goals and culture.

III. Personnel System Changes

A. The Human Resource Process

``Ultimately, the results HRM processes achieve must be synonymous

with organizational success. Recent studies in the private sector have

established a linkage between progressive HRM practices and the firm's

financial performance. These findings make a strong case for HR to

concentrate its efforts on those activities that add value to

organizational performance.''

The above quotation from the study, Innovative Approaches to Human

Resources Management: Implementing Real Change in Human Resources

Management, published by the National Academy of Public Administration,

July 1995, clearly explains why it is essential to align human resource

systems to organizational outcome measures. Human resource systems

exist because customers and employees, who deliver service to

customers, exist. The human resource systems must support the

organizational outcome measures and add value to the benefits and

services VBA provides veterans and their families. The project proposal

identifies basic principles and operating guidelines as well as options

the Regional Offices may use. The demonstration project process will be

evolutionary and flexible so it will be able to support changing

organizational, employee and customer needs and expectations. The

demonstration project will refer to team and team members, but to add

flexibility to the offices involved in the project these terms can also

be applied to work unit and work unit members.

The human resource process has three stages: The Entrance Stage

that brings employees into the organization and introduces them to its

mission, vision, values and culture; the Maintenance and Support Stage

that includes everything that sustains, develops, and focuses employees

upon serving veterans and their families and meeting its organizational

outcome measures; and, the Exit Stage that deals with issues affecting

employees leaving the organization.

The following chart provides another explanation of the human

resource process and a more complete

[[Page 58949]]

explanation of each step of the process follows:

Demonstration Project Human Resource Innovations

Entrance Stage

Selection and Placement

Orientation and Assimilation

Maintenance and Support Stage

Role Description

The Compensation System

Skill-Based Pay

Variable Pay

Organizational Performance Management

Learning

Performance Feedback

Learning Contract

Recognition

Exit Stage

Reduction-in-Force

Exit Interviews

B. Entrance Stage

Selection System

The Regional Offices will use a selection process for both external

and internal candidates that is aligned to the organization's measures

and values and that will include core competencies needed to

successfully function in a customer service environment. The basic

principles and the operating guidelines for the selection system are:

(a) The selection process will focus on hiring individuals

committed to serving veterans and their families; (b) The selection

process will use organizational values in establishing competencies for

its business lines; (c) The selection process will follow Merit System

Principles and apply veterans' preference; (d) Team, or work unit,

members will be fully involved in selecting future members; and (e) All

procedures developed will be streamlined, customer-focused and cost

effective, keeping administrative costs at a minimum.

Instead of the traditional occupational series, the selection

system will place people in business lines which are Veterans Benefits,

Veterans Homes, Veterans Jobs and Support. Selections for the business

lines will be based on the core competencies and the knowledge, skills

and abilities needed for those business lines. All applicant sources

will be used to ensure that the Regional Offices find the best

qualified candidates who are able to serve veterans in a team

environment.

The process will use a rating mechanism that will assess the

experiences and ability of the applicants to provide veterans and their

families with excellent service. The process will identify the

necessary and desirable job-related knowledge, skills and abilities

which support the organization's goals and values. The process will

then assess how well candidates meet those requirements, using a review

of individual applications and one or more of the following tools: (a)

A structured interview process involving members that will use

organizational measures and values as the anchors for the interview

process; (b) An interview or assessment process that will focus on core

competencies, such as communications, customer service, flexibility and

innovation, which are the people and business skills critical for

quality customer service; (c) An assessment process to determine the

applicant's ability to work on a team providing service to veterans and

their families; (d) Teamwork and partnership involvement in the

selection process; and (e) A pre-appointment visit to a team for

external applicants to help them understand what it is like to work on

a team.

This assessment process would serve several purposes: (a) The

applicants would get an idea of what it is like to work on a team; (b)

It would provide a way to rate applicants based on concrete situations;

and (c) Team members would own the process and have a stake in the

quality of the candidates selected.

The assessment process would be used for all external hires to the

team. The Regional Offices will have the option of having examining

authority delegated to them.

Selection for coach and leadership will require a special,

competitive selection process. All coach and leadership positions will

require the use of an assessment process that will evaluate the

individual's ability to provide leadership in a team environment and

will assess the applicants on how well they can serve in the leadership

role. The leadership roles include: coach, facilitator, process

champion, and organizational strategist.

Orientation and Assimilation

Veterans and their families are the reason VA exists. Working in a

team environment that is customer-focused requires a special degree of

commitment and caring from the employees involved. For this reason, an

orientation to the organization's unique mission, vision, values and

organizational outcome measures and goals is essential.

Upon joining the Regional Office and one of its business lines, the

new team or work unit member will be required to undergo an orientation

and assimilation program that will include: (a) The Mission and Vision

of the Department of Veterans Affairs and the partnerships existing

within organizational components of VA; (b) The Mission and Vision and

Values of VBA and the Regional Offices; (c) The History of VA and

Veterans Benefits; (d) Veterans Awareness--An Overview of the Concerns

and Needs of Veterans; (e) The Balanced Scorecard or a Similar

Organizational Tool--The Core Measures and How to Contribute to the

Success of the Organization; (f) The Team, or Work Unit, Member's Role

in the Organization; (g) An Overview of the Human Resource Process

Supporting the Team or Work Unit Member; (h) The Compensation System--

Pay for Applied Skills and Variable Pay; (i) Learning Contracts and

Skills Acquisition; (j) Diversity, Sexual Harassment and Other Required

Training; (k) The Union and Partnership; and (l) Team Skills.

The new team member will have a learning contract developed that

will identify the training he or she will receive and will have a peer

trainer, or mentor who will help the new person with the transition

into the organization and the team environment.

C. Maintenance and Support Stage

Role Description

Every team member should understand how he or she works on a team

that is customer focused and how he or she contributes to

organizational outcome goals, to service delivery and to the

organization and the team. The purpose of a role description is to

focus on the customer rather than upon control and authority. Teams

will develop the role descriptions and review them during their renewal

meetings that are held semi-annually to assess progress and establish

organizational, team and self-development goals for the year. The role

description will include: (a) the customer--veterans and their

families; (b) the process used to provide service; and (c) the measures

and values of the organization.

The following chart identifies questions to be answered by the role

description:

Questions the Role Description Will Answer

Customer Profile

Who are your customers?

What do they need or want?

Capability Profile

What is necessary for you to perform these functions at an optimal

level (primary capabilities)?

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Resource Profile

From whom do you receive resources (e.g., Materials, information,

money, etc.)?

What do they provide you?

Value-Added Profile

How do you utilize these resources to serve your customers (i.e.,

Primary accountabilities)

Team Profile

How do you know if you are supporting your team?

What do you have to do to serve your customers?

Performance and Capability Profile

How do you know if you are performing your services well (i.e.,

primary performance measures)?

Skill Block Profile

What skill blocks are needed for this role?

The role description will help the team member understand how he or

she supports organizational performance.

Compensation System

``If you develop skills we need, apply them in ways that help the

organization succeed and behave in accordance with organizational

values, the organization will provide a challenging work environment,

support worker development toward employability and reward

contribution.'' Peter Drucker, Post-Capitalist Society.

The total compensation or pay system is an important indicator of

what an organization believes is important to its success. A well-

designed compensation system provides a battery of tools to support

organizational goals and outcomes. The design should be strategic,

flexible, nimble and customer-focused. The current compensation system,

because it was implemented in a piecemeal fashion for a hierarchical,

functional organization, does not relate to emerging business needs and

is static, cumbersome and hidebound. The demonstration project will

test a compensation system that is able to change based on the needs of

the entire organization, of the taxpayer and of the customer being

served.

Parts of a Compensation System

A compensation system consists of base pay, variable pay and

indirect pay. Since indirect pay covers employee benefits such as

retirement and insurance which statute excludes from demonstration

projects, indirect pay will not be included in the demonstration

project. The demonstration project will cover only base pay and

variable pay as defined below:

(a) Base pay is a set salary and focuses on the strategic value of

the skills an individual learns and applies in support of the

organizational outcome measures.

(b) Base pay initially will only include a Pay for Applied Skills

System.

(c) If the demonstration project develops the necessary

organizational maturity and ability to work in an environment where

organizational outcome measures are the focus of every member, the

project will design and implement a phase that will be a ``Pay at

Risk'' option for handling annual pay adjustments. This addition will

provide employees an opportunity to increase their base pay by all or

part of the annual adjustment only if the organization is successful.

Base Pay at Risk will be another tool considered for the organization

to use. It will help the entire organization develop and practice the

behaviors needed to be successful and strategically focused. Until this

innovation is adopted, employees will be entitled to the full general

increase.

(d) Variable pay which includes incentives, bonuses, gainsharing

plans and goal sharing plans ``* * * is any form of direct pay that is

not folded into base pay and that varies according to performance.''

(Schuster & Zingheim, 1992). Funding will come from the traditional

awards funding process, but a later phase of the project may use funds

following a gainsharing formula based on savings that may be used to

support payouts based on meeting projections identified through a

goalsharing plan.

Both base pay and variable pay will focus upon the organizational

outcome measures. The proposal includes options for both base pay and

variable pay which the Regional Offices may use during the project.

Overview of Base Pay

For the demonstration project, base pay will include the following:

(a) Pay for Applied Skills is the foundation of the compensation

system. It is a skill-based pay system that will pay employees for the

skills they learn and use to support the mission of providing benefits

and services to veterans and their families. It will set a value on the

skills based on their strategic use and impact upon providing benefits

and services to veterans.

(b) Base Pay at Risk is base pay that varies based on

organizational performance. The project includes an option to implement

Base Pay at Risk. It is not part of the project's initial

implementation but may be considered for use later in the project. This

could involve using the annual pay adjustment under 5 U.S.C. 5303, or

part of this increase, as part of an incentive strategy tied to

accomplishment of organizational goals. It is another tool that a

mature organization can use to help shape its strategic organizational

behavior.

Overview of Pay for Applied Skills

Pay should reflect and support what is important to the

organization. In a skills-based pay system, skills and competencies a

person learns determines that person's pay. In a Pay for Applied Skills

System, the skills and competencies a person learns and uses become the

basis for pay. A Pay for Applied Skills System aligns very well with

VBA's organizational outcome measures and, in particular, those

measures dealing with employee development. In addition, since a Pay

for Applied Skills System works well in a high employee involvement

organization, the structural and organizational systems adopted or

being adopted in the Regional Offices also will fit this type of

change.

Pay for Applied Skills--General Features

Pay for Applied Skills will be base pay. The following are its

basic principles and operating guidelines. When implemented, it will:

(a) Pay employees for the skills that they have acquired and used, and

that have been certified; (b) The number of employees that may be

certified (concurrently) for each skill block and groups of skill

blocks will be based on employees' ability to learn and apply the

skills and on mission requirements (e.g., organizational goals,

workload) and may change over time as conditions warrant; (c) Include a

certification process to verify acquisition and application of skills;

(d) Be tied to organizational planning through the employee development

measures; (e) Provide flexibility to respond to changing work

requirements at the Regional Offices; (f) Provide leadership skill

blocks that will emphasize the importance of leadership in a flattened

organization and that will provide a bridge between these skills and

the skills found in the business lines; (g) Involve employees in the

development of the compensation system; (h) Provide the options of a

temporary payment (differential pay) for skill blocks when the

organization knows the use of a skill is not permanent (e.g., a team

member could receive differential pay for instructing); (i) Allow

employees to understand how learning and applying the skills they learn

can affect their pay; (j) Focus upon

[[Page 58951]]

keeping administrative costs at a minimum, since cost is one of the

organizational outcome measures and will be included in the project's

evaluation plan; (k) Include a pay back period during which the

employee will normally not receive training for the next skill block so

that they can concentrate on fully mastering the new skill for which

they have just been certified to pay back the organization for the

investment it has made in their training. This does not apply to lump

sum skill blocks. The length of time will be determined by the skill

block's complexity; (l) Provide that the employee will, whenever

possible, be given every opportunity to acquire, apply and be certified

for a new skill block if the organization loses the need for an

existing skill block due to such things as new legislation, a

reorganization, loss of a function, or new technology. The situation

described is a reduction-in-force (RIF) and the RIF procedures in Part

III-D of this plan will apply.

Skills and Competencies. The definition of skills and competencies

for this demonstration project are as follows: (a) Skills are the

technical, work, or process skills needed for the specific business

line. In the Regional Offices, the four business lines are Veterans

Benefits, Veterans Homes, Veterans Jobs, and Support. (b) Competencies

are the people and business skills which are just as critical as the

technical skills to quality customer service. These focus upon personal

characteristics which an employee can develop and will need if the

organization will be successful. These include such things as

communications, flexibility, customer focus and team orientation.

Skill Levels. Pay for Applied Skills will have three skill levels.

Because of the nature of the skills involved, it may be possible for

skills to be at only one level: (a) Fundamental Level--This level

consists of skills that are used for the most basic, continuing

assignments, or are those needed to progress to the proficient and

expert levels, to begin moving towards self-management, and to develop

as a team member; (b) Proficient Level--This level consists of skills

that are essential for the business process and allow the employee to

independently complete with speed and accuracy the full range of tasks

and assignments needed for the business process involved and to

function as a full team member; and (c) Expert Level--This level

consists of skills needed for the most complex business processes and

assignments and that demonstrate the ability to perform in a manner

showing a complete knowledge of their concepts, principles, and

applications. It also includes those skills needed for providing

guidance, instruction and advice to others in all skill and competency

areas.

Skill Blocks. Skill blocks consist of skills: (a) Each block will

focus on specific areas of expertise/knowledge needed to perform

assignments; (b) Blocks (when appropriate) may fall into one of three

skill levels (Fundamental, Proficient, and Expert) based on the

complexity and scope of the skills involved; and (c) The value of the

skill blocks will be set by the organization and tied to the

Organizational Measures dealing with employee development, (for

example, in the NYRO, the Technical Skills Matrix will form the basis

for the technical or work skill blocks). (d) The value of a skill will

depend upon the organization's future need for the skill that such

things as customer needs, stakeholder requirements, and changes in

technology will help determine; and (e) An employee will receive Pay

for Applied Skills when he or she has learned and applied all of the

skills found in one or more skill blocks.

Competency Block. Competency blocks consist of the people or

business skills needed at each skill level. While the competency blocks

have no monetary values assigned to them, employees must demonstrate

the potential to acquire and use competencies before moving into each

skill level. In New York, the Team Development Matrix and the

Individual Needs Analysis Survey will help define competencies. In

addition, employees must demonstrate the people or business skill

identified for each competency skill block before advancing to the next

skill level. For example, before advancing into the proficient skill

level, an employee must have demonstrated the competencies listed under

competency block C1.

Skill Paths. Pay for Applied Skills may use skill paths to show

progression and movement through the system. Skill Paths: (a) Show the

options for acquiring skill blocks in the organization that will be

based on the organization's needs and the employee's developmental

needs, and as defined by its outcome measures; (b) Emphasize horizontal

and lateral movement rather than the traditional hierarchical

progression of career ladders; (c) Encourage flexibility in the ways

employees acquire and learn new skills; and (d) Emphasize the

importance of investing in the development of employees to help support

the organization's performance and outcome measures.

Leadership Skill Blocks. The leadership skill blocks will

supplement the Business Line Skill-Based Pay Model by including

positions formerly covered by the GS 14, Step 1 to GS 15, Step 10 pay

range. They will provide a bridge to the Business Line Skill-Based Pay

Model by linking with the coach skill blocks. Competitive procedures

will be followed for movement into these skill blocks, since the

organization will limit the number of individuals applying these skill

blocks. As in the case of the coach skill blocks, a formal assessment

process will be required also for the leadership skill blocks. The

leadership skill blocks will continue to be critical to organizational

success even as the organization becomes flatter and team members

broaden their capabilities. The leadership skill blocks are based upon

the Office of Personnel Management's Leadership Framework that covers

traditional supervisory, managerial, and executive jobs.

The leadership skill blocks provide the leadership skills that

support the business lines. These skills are critical to the coach,

facilitator, process champion and organizational strategist roles. The

leadership skill blocks will include coaching, facilitation, change

management, business management and organizational systems management.

As with the skill blocks found in the Business Line Skill-Based Pay

Model, the leadership skill blocks will be flexible and will change

with organizational needs. However, movement into these skill blocks

will be competitive, since the organization will limit the number of

individuals applying these skill blocks.

The Business Line Skill-Based Pay Model

The Business Line Skill-Based Pay Model is the basic model for the

business lines. The model, shown in Figure 5, is a template that the

New York Regional Office developed and will be applied to all the

business lines, although the number of skill blocks may vary by

business line. While the skills, competencies, and levels presently

reflect those required to process and pay veterans claims, the same

basic model with perhaps a different number of skill blocks will also

be used to reflect the skills required for the Veterans Benefits,

Veterans Home, Veterans Jobs, and Support Business Lines. The model is

not static, but will change as skill blocks are added, deleted, or

modified. In addition, the model may vary from Regional Office to

Regional Office depending upon organizational needs.

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The model also provides a bridge to the leadership skill blocks

that replace the traditional supervisory and management functions. The

pay range for the leadership skill blocks will be from GS 14, Step 1 to

GS 15, Step 10, only to accommodate the few remaining managerial

positions that still exist within the organization and to recognize

that organizational needs may dictate the need for additional

leadership skills.

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Skill Blocks. Currently, the New York Regional Office's Business

Line Skill-Based Pay Model consists of twenty-two skill blocks and

three competency blocks: (a) Seventeen blocks are used for setting

continuing base salary; (b) Fourteen of these skill blocks consist of

technical skills. An employee's pay may increase as he or she acquires

and demonstrates the technical skill blocks, assuming the skills are

needed by the organization; (c) Three are competency blocks, which are

people skills; and (d) The remaining eight skill blocks represent

opportunities for lump-sum payments.

As necessary, the number and the composition of the skill blocks

may change to respond to organizational requirements or to reflect

refinements in the Pay for Applied Skills System.

The Levels. The seventeen blocks, used to set continuing base pay,

are divided into three levels: (a) The Fundamental level. This first

level consists of four blocks: one competency block and three technical

skill blocks. Technical skills at this level enable employees to

process mail, obtain evidence and maintain files. All four of these

blocks must be mastered before advancement to the proficient level; (b)

The Proficient level. This middle level consists of five blocks: one

competency block and four technical skill blocks. Technical skill

blocks include those skills essential to processing compensation and

pension claims, making and documenting administrative decisions, and

counseling veterans. Again, an employee must master all the blocks at

this level before advancement to the next or expert level, and (3) The

Expert level. This top level includes nine blocks: one competency

block; and five skill blocks relating to the most complex functions of

the claims adjudication process, (e.g., authorization or quality

assessment and ratings or medical decisions).

There will be a bridge from the coach skill blocks at the expert

level to the leadership skill blocks. The leadership skill blocks will

require competitive selection, and the use of these skill blocks will

be restricted.

Lump-Sum Blocks. The eight lump-sum blocks consist of skills

required to perform tasks or functions which may last for a limited

period of time or tasks which only one or two members of the team need

perform in support of the team. The teams may rotate these functions or

tasks periodically. This rotation will give all team members the

opportunity to both gain the skills within the block and receive a one-

time payment for utilization of those skills. The one-time payment

would be based on the monetary value of the block and the length of

time the skills are applied.

Pricing of Competency or Skill Blocks. The following guidelines

will be followed for pricing competency and skill blocks: (a) The

competency blocks will have no dollar values placed on them; however,

acquisition of all the necessary competencies at any level will be

required for advancement to the next higher level. For example, to

advance to proficiency level, an employee must acquire all competencies

at fundamental level, and (b) A monetary value will be assigned to each

of the twenty-two skill blocks, based on its importance to the

organization and its complexity. The value of skill blocks will be

determined by several factors, including the demand for the skills, the

difficulty of obtaining them, and the complexity of the tasks.

Generally, the higher the level, the more valuable the skill block. For

example, the expert level skills represent the most complex functions

within the claims adjudication process.

Pay Model Pricing. Excluding the leadership skill blocks, the pay

range selected for the Business Line Skill-Based Pay Model as applied

to the Benefits Line is GS-3, Step 1 to GS-13, Step 10. This range

reflects the grades of those employees who will initially be covered by

the demo (i.e., GS-3 to GS-13). The GS-3, Step 1 pay rate will serve as

the floor of the model and GS-13, Step 10 will serve as the ceiling.

The skill-based pay range (GS-3/1 to GS-13/10) for the business

lines will be divided between the three levels and dollar values will

be assigned to the various skill blocks based on organizational need at

the time of conversion. The system will be modeled using one or two

teams and assessing the skills of every team member and then applying

the dollar values of the skill blocks to each team member to evaluate

potential impact of the skill-based pay model on the employees and the

organization. The skill block dollar values will be adjusted based on

the results of the model and in consideration of the value of the skill

block to organizational need.

Skill Block Progression (General). As is mentioned in the previous

paragraph, an employee must have mastered all the technical skill

blocks and the competency block in one level before progressing to the

next level. (NOTE: In very unusual circumstances to meet organizational

needs, an employee who has not acquired all the skill blocks at a

particular level may be asked to acquire a block at a higher level.)

Additionally, certain skill blocks within the fundamental and

proficient levels are prerequisites for other blocks at the same

levels; however, both the proficient and expert levels permit more than

one career path for progression among the blocks. Certification of

skill possession in a block an employee is currently utilizing would

result in a compensation increase equal to the dollar value of the

skill block.

Examples of Progression Through Skill Blocks. In Figure 6, the

Progression or Skill Path Model, shows various options for skill

acquisition and progression through the skill and competency blocks.

The following are examples of how an employee will progress through the

model.

(a) New Recruit. Newly hired case managers would begin their

progression at the fundamental level that includes three skill blocks

B1, B2, and B3 and one competency block C1. While an individual

organization may, based on its need, require the acquisition of the

skills in one block before another, this is not a requirement at the

fundamental level.

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For example, an employee could begin with B1 (Mail, File and

Control), B2 (Development), B3 (Transition), or C1 (Competencies). As

indicated by the arrows, the new case manager could tackle the skills

blocks in the order of his or her choice. The case manager would have

to demonstrate all of the skills and competencies at the fundamental

level before progressing to the proficient level.

For entry into the proficient level, the employee must demonstrate

the potential to perform all of the competencies listed under C2. At

the proficient level, the employee could first undertake B4

(Compensation and Pension) or B6 (Counseling). The skills described in

B5 (Adjudication) would likely be more easily acquired after

acquisition of the skills in B4. B7 (Counseling) requires a breadth of

counseling skills not required by B6. B6 would, therefore, serve as a

prerequisite for B7. The case manager would have to acquire and

demonstrate the skills and competencies (C2) of the proficient level

before progressing to the expert level.

Again, Figure 6 shows the options for movement at the expert level.

B8 (Quality Assessment) is a prerequisite for B9 (Advanced Quality

Assessment). B10 (Medical Decisions) is a prerequisite for B11 (Medical

Decisions) and B12 (Medical Decisions). While an employee could move

into B13 after completing the proficient level, the move into B13

(Coaching) would require an organizational need for someone to assume a

coaching role, competition and a formal assessment. B13 is a

prerequisite for B14 (Advanced Coaching). Movement into the leadership

skill blocks would require competitive selection.

(b) Current Employee. Placement for existing employees into the Pay

for Applied Skills System will require an assessment of each employee's

skill level. Credit for the skill block will only be granted when the

employee possesses all of the skills listed for that skill block.

For example, an employee worked as a Veterans Benefits Counselor

for 3 years prior to 1993. In 1993, she was placed on a team and became

a Case Manager. The employee previously possessed the skills described

in B6 and B7. In the last three years, as a Case Manager, the employee

acquired the skills in B1, B2, B3, B4, B5 and a portion of B8. The

employee has demonstrated the competencies at the C1 fundamental level,

but has not yet demonstrated them at the C2 proficient level. The

employee is currently a GS-9.

Upon transition into the Pay for Applied Skills System, the

employee would receive compensation based on the value of B1 through

B7. The employee would not be compensated for B8 until he or she

possesses and demonstrates the competencies described by C2 at the

proficient level and all of the skills for B8.

(c) Transferred Employee. Employees transferring into the Pay for

Applied Skills System would be assessed in the same manner as existing

NYRO employees. The employee transferring into the NYRO would be paid

for the skill blocks when all of the skills in the block are possessed

and demonstrated, subject to organizational need. Sources of

information could include in-depth team interviews, work samples and

detailed input from previous supervisors.

Certification and Recertification Process

The Pay for Applied Skill System will include a certification/

recertification process that will determine whether or not the employee

has the skills required for a particular skill set.

The certification process may include a variety of techniques that

will take into consideration the growing complexity of skills needed.

The certification process will reflect the skills identified in the

employee development measures.

General Principles and Operating Guidelines for Certification and

Recertification: (a) The process will be developed with employee

involvement and input in line with the Partnership Agreement; (b) The

process will be linked to the learning plans developed by the teams and

the organization; (c) Partnership principles will be key to the success

of this process; (d) The process will adjust to changing organizational

requirements as well as to the need of team members for development and

advancement in terms of the breadth, depth, and lateral growth of

skills; (e) The process will provide a systematic way to identify

skills that are needed or no longer needed in the organization; (f) The

process will provide a way to know whether or not the employee

continues to use and maintain a skill or competency for which he or she

had previously been certified; (g) Certification will be systematic and

will use consistent and objective measures; (h) The process will make

clear to employees the skills for which they are being paid; (i)

Accountability and oversight will be at the team level; (j) Team review

of performance could include determination of which skills are no

longer needed; (k) The process will reflect the learning needs

identified by the employee development outcome measures; (l) The

certification process will be evolutionary and will move towards a mix

of work samples, and peer reviews geared to the level of performance.

An exploration of options is an important part of the project; (m) The

certification process may use levels of difficulty or development to

select assessment tools. These could be defined as follows:

Expert--Peer reviews, work samples, joint work or interviews;

Proficient--Peer review process using work samples, joint work, testing

or interviews; and Fundamental--Self-Certification with peer

concurrence; (n) Pay will increase only after the employee has

acquired, used and demonstrated performance of the skills through the

certification process; (o) An employee will not be able to undergo

certification for the skill immediately after training. Pay for Applied

Skills will establish specific time frames for certification based on

the complexity of the skills involved and upon input from team members;

(p) Organizational needs will help identify the need for skill block

acquisition; (q) The opportunity to be certified for a skill block will

be managed based on organizational need; and (r) Team members will help

determine who within the team will receive training for new skills.

Special Circumstances in the Certification and Recertification Process

(a) The situation where the organization no longer needs a skill

and decides to discontinue a skill block, i.e., discontinue as no

longer needed, is a Reduction-in-Force. The process found in Part III-D

pertaining to Reduction-in-Force will be followed.

(b) If the organizational performance review leads to the

determination that an individual team member may have a performance

problem, the certification process may be used to help determine

whether or not the employee has maintained the skills he or she needs.

The certification process will not replace the organization's

responsibility to resolve a performance problem.

(c) The certification process will help ensure that employees

maintain the skills needed to provide benefits and services to veterans

and their families. The certification process could be triggered by the

peer assessment process or result from a coach review. If the employee

is unable to be recertified for a skill for which he or she was

previously certified and for which the organization has a need, the

process described in the Organizational Performance Review Process

under Part

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III. Personnel System Changes will be followed.

Base Pay at Risk

Base Pay at Risk will provide a tool to use organizational success

as a way to increase base pay. This will occur only if the organization

has shown success and has developed confidence in using variable pay

incentives based on organizational outcome measures. It will include:

(a) Using part of the annual adjustment under 5 U.S.C. 5303; (b)

Involving all members in developing the formula used for the addition

to base pay, and (c) No reductions in base pay.

Note: Base Pay at Risk is an option that may be considered in

the future, but is not part of the demonstration project's initial

implementation.

Variable Pay

Overview of Variable Pay. Variable pay will provide not only an

organizational reward structure, but it will provide the organization

with a way to compensate members for special skills needed to meet work

and customer requirements. Variable pay is not base pay. It provides a

one-time, lump-sum payment to an employee that is not included in base

pay. For the demonstration project, variable pay will not only be used

for incentives, but as a way to deal with special workload

requirements, and as a bonus when appropriate for the acquisition of

critical skills or competencies, or to meet other special

organizational needs that may develop during the project.

Variable Pay as an Incentive. As an incentive, variable pay will

base awards on how well organizational goals are met and will include a

form of goal sharing as an important component.

Phase One will use team awards based on how well the core teams, or

comparable group of work units, and the Regional Office achieve goals.

This type of award is similar to the group awards currently authorized

under existing law; however, the award structure will provide a way to

provide greater payouts if the entire organization meets its

organizational outcome goals.

Phase Two will involve goalsharing. Goalsharing evolved from

gainsharing. Goalsharing includes not only efficiency as seen in the

speed measure, but effectiveness as seen in the customer service,

employee development and cost measures. Unlike Phase One, goalsharing

would be funded from savings, using a set formula and based on the

``unit cost'' core measure. It would differ from Base Pay at Risk,

since it would be a one-time payment and not be part of the employee's

regular salary.

Features of Incentive Variable Pay. Variable pay will provide an

organizationally focused incentive structure tied to organizational

measures and the ``Balanced Scorecard.'' Variable pay as an incentive

will meet the following general principles and operating guidelines:

(a) It will be Pay at Risk since payment will depend upon how well the

organization meets its goals; (b) It will not reinforce competition

between individual teams, but will use the core teams as the minimum

unit for incentives. The payouts will occur at the core team level and

up to the whole organization; (c) It could evolve from a group

incentive system to a full goalsharing plan based on the accomplishment

of organizational goals using a pre-determined formula. Team members

will be involved in the development of the goalsharing plan as will the

union partners; (d) Payments will be made for results related to the

following organizational measures: Speed, Cost, Customer Based

Measures, and Employee Measures; and (e) Accuracy is not used, since

the organization wants to encourage employees to find errors. However,

accuracy measures will be included as part of the Organizational

Performance Review Process described in Section III of this plan.

Variable Pay for Workload Flexibility. This option will provide the

Regional Office with a way to use ``one-time'' lump-sum payments or a

continuing differential pay to meet special organizational needs. These

payments will not become part of base pay and will not become long-term

costs. The following are examples of variable pay used to provide

workload flexibility.

(a) As a lump-sum payment, variable pay will provide a way to pay

team members for rare skills not generally needed throughout the

organization or needed infrequently. Employees could bid for work that

the organization needs for short periods of time in order to meet

special workload or customer requirements. This might include special

projects or special field assignments.

(b) As a lump-sum payment, variable pay could also be used to pay

employees for new or developing skills identified by the organization

until the continuing need for the skill is determined, and

(c) Variable pay will provide a way to pay team members for work an

organization needs to meet special work or customer requirements which

are expected to last for a significant period but not become permanent

work of the organization. An example would be a team member who

functions as a coach during the absence of the regularly assigned coach

because of long-term illness. It could also be used to compensate

employees who serve as instructors on a major training effort.

Organizational Performance Management

In October 1990, the General Accounting Office (GAO) issued the

report, PERFORMANCE MANAGEMENT: How Well Is the Government Dealing with

Poor Performers. GAO concluded that under the performance management

system ``identifying and dealing with poor performers * * *'' was often

``* * * a difficult and time-consuming task * * *'' and that it was ``*

* * unfair to expect managers and supervisors to operate in an

environment where identifying and dealing with poor performers tends to

be much more difficult than it needs to be.''

This GAO report dealt with performance appraisals in a traditional

organization where each employee received an individual performance

rating from his or her supervisor. While it was always assumed that the

employee's performance standards were clearly tied to the

organization's mission, the employee's ``line of sight'' between his or

her work outcomes and those of the organization was often too great or

too nebulous.

GPRA provides an opportunity to improve the employee's ``line of

sight'' to the organization's outcome measures. In an environment where

teamwork is encouraged, valued and expected, the team, or work unit,

sets goals based on the organizational outcome measures. Because each

team member's ``line of sight'' is initially limited to his or her

team, the team member will be able to understand more readily how his

or her work affects the work of the entire organization.

The demonstration project will test organizational performance

management's link to individual performance and contribution by using

data collected for the ``Balanced Scorecard,'' or similar

organizational tool, and the continuous improvement process inherent in

an environment where teamwork is encouraged. Organizational Performance

Management is directly linked to and literally supports the

compensation system. The basic principles and operating guidelines of

organizational performance management are: (a) If the Regional Office

does well, employees do well; (b) The organizational outcome measures

are the focus of every member; (c) Every member of the organization is

[[Page 58958]]

responsible for contributing to the success of the organization; (d)

Every member must understand and be able to explain how his or her

performance contributes to the organization's success; and (e) Teams

and coaches, or other organizational equivalents, will assess

individual members in terms of contribution to the organizational

outcome goals.

Organizational Performance Review Process

Organizational performance management is a continuous process that

goes on throughout the organization. In a traditional setting,

information concerning an organization's performance and the process

involved in setting and reviewing goal accomplishment is generally

considered to be in management's purview. The demonstration project

will utilize the process of ``Open Book'' management that was developed

by the NYRO GPRA pilot site following its organizational system design

model. This is a high involvement strategy that includes every employee

in some aspect of collecting, reviewing, and assessing information

about performance at all organizational levels. This process involves

reviews at three levels, focuses upon the ``Balanced Scorecard,'' or

its equivalent, and is data-driven. Since employee involvement is

critical to the success of any organizational performance system, the

Detroit Regional Offices will develop a system that will meet

organizational needs and the general guidelines and operating

principles of the project. The system developed by the NYRO that may be

used as a model is outlined below.

Regional Office Level Review. The Regional Office's progress is

reviewed at weekly team goal meetings, at bi-weekly Director staff

meetings, at quarterly reviews of the organization's Quality Plan, and

at semi-annual renewal sessions. The ``Balanced Scorecard'' and the

goals set in the Quality Plan support each other and focus everyone on

improving service to veterans and their families.

Team Level Review. The team will evaluate its own performance

against the measures reflected in the ``Balanced Scorecard'' and will

assess how well it is contributing to the success of the organization.

The team not only works towards its own goals, but also works towards

improving the success of other teams as well as the success of the

entire organization.

Team Review Process. Each team conducts weekly goal meetings during

which the team assesses how well it met the weekly goals it had set for

itself. Since the goals relate to the ``Balanced Scorecard,'' the

organizational outcome measures, the team members understand how their

work fits into the work of the entire organization at the Regional

Office, division, and core team levels.

The team review process provides each team member with specific,

concrete data for the organizational outcome measures and the weekly

goals the team sets to support the organizational goals. Since the

discussion looks at the causes for meeting or failing to meet the

weekly team goals, each team member develops a real sense of how he or

she contributed to the outcomes the teams produced during the week. The

process is designed to develop individual accountability and ownership

for the outcomes being achieved with feedback from both the coach and

the team members. The assessment requires specific responses that

include corrective action or additional help. There is a consequence

for every action that does not support organizational performance. In

addition, each team member is expected to learn to prepare and present

data at the team goal meeting. Each team member also has a role in

determining the team's goal for the next week. Because organizational

outcome data is reviewed and discussed weekly, the employee never loses

sight of the organization's goals and mission and of the team's

contribution to the core group, the division and the Regional Office.

Following this process, performance management becomes organizational

rather than individual.

Team Member Level Review. The teams will also assess how each team

member contributes to the achievement of the organizational measures.

The assessment helps to determine the individual performance rating.

Team Member Review Process. The team members will assess each other

to determine how well each person is contributing to the achievement of

organizational goals. The team will evaluate team members twice a year

on such categories as: Output, Customer Service, Reliability, Team

Support, and Accuracy.

In offices with highly developed teams, team members will help

define the behaviors for each rating level. An initial option will be

to define the levels as follows:

GREEN ZONE = Contributes to Achieving Organizational Goals

AMBER ZONE = Needs to Improve Efforts to Meet Organizational Goals

RED ZONE = Does Not Contribute to Organizational Goals

Action Options Based on Team Member Ratings. Based on the ratings,

these are the options for taking action ( See Figure 7--Peer Assessment

Options).

GREEN ZONE

The team member and coach will prepare a Learning Contract for the

year. The Learning Contract will include developmental activities

selected to strengthen the employee's skills and to increase the

organization's ability to meet its goals.

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AMBER ZONE--First Time in Amber Zone

The coach, whose role is to move the team to self-direction, will

discuss the ratings with the employee and counsel him or her on areas

for improvement. This is important, since the Amber Zone is

unacceptable. The coach will give the team member assistance to

improve. The coach and the team member will develop a Learning Contract

that will include developmental activities designed to help improve his

or her contribution to the organization as well as to help his or her

individual growth. The areas for improvement may include technical

skills, or competencies. The following are possible activities: (a)

Reading, (b) Special Team Assignment or Project, (c) Output Goals, (d)

Formal Training, (e) Peer Training, (f) Specific Behaviors to model and

practice; and (g) Assignment to a Mentor, or Peer Advisor.

The team member and coach will determine the specific days they

will meet to discuss how well he or she is meeting the goals set in the

Learning Contract. This will help the team member set improvement goals

for himself or herself.

AMBER ZONE--Second Time in Amber Zone

If the team member goes into the Amber Zone for a second time in a

calendar year, the team member automatically moves into the Red Zone.

RED ZONE

If an employee is in the Red Zone, the coach will become more

actively involved with the team member. As the flowchart, ``Review

Process for `Red Zone' Assessments'' (Figure 8) shows, the action taken

will vary with the category involved.

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[[Page 58962]]

(a) If output, accuracy or customer service are involved, the coach

will place the team member under a 90 day review using individual

performance standards;

(b) If team support is involved, the coach will help the team

member identify improvement actions; or

(c) If reliability is involved, the coach will discuss how the team

member's behavior needs to improve and will closely monitor the team

member's behavior.

While a performance improvement plan will be used to document how

the team member has to improve in the areas of output, accuracy and

customer service, a learning contract could be used to document the

actions the team member will take or the behavior the team member will

practice to eliminate the problem. The Red Zone Action Chart (Figure 9)

identifies the action to be taken, the documentation needed, and the

possible consequences for these situations.

Figure 9: Red Zone Action Chart

----------------------------------------------------------------------------------------------------------------

90 Day review and

standards and Action if there is

Category Counseling performance Learning contract no improvement

improvement plan

----------------------------------------------------------------------------------------------------------------

Output.......................... Yes............... Yes............... No................ Decertification or

Removal.

Customer Service................ Yes............... Yes............... No................ Decertification or

Removal.

Reliability..................... Yes............... No................ Yes............... Discipline or

Adverse Action.

Team Support.................... Yes............... No................ Yes............... Reduced Variable

Pay Amount.

Accuracy........................ Yes............... Yes............... No................ Decertification or

Removal.

----------------------------------------------------------------------------------------------------------------

Out-of-Cycle Assessment. If at any time based on observation or

team feedback a team member's performance or behavior does not meet

team or organizational expectations, an out-of-cycle assessment may be

done. Based on this assessment, corrective action, if required, will be

taken.

Appeal Process. Existing appeal rights to the Merit Systems

Protection Board, the negotiated grievance procedure, or the

administrative grievance procedure will continue for adverse actions.

Decertification due to the inability to do a particular skill block may

be appealable through an internal certification appeals process that

will be established in line with the Partnership Agreement. In

addition, the employee would have the right to appeal a decertification

action to the Merit Systems Protection Board as a reduction in pay as

provided for in 5 CFR Sec. 1201.3(a)(2).

Individual Performance Ratings

All employees will receive an annual performance rating in terms of

how well they contribute to and support organizational goals. The

ratings will be pass or fail. Employees will receive a rating of pass,

unless through the Organizational Performance Management System they

receive a rating of fail or are unable to be recertified in the

appropriate skills.

Learning

Since employee development is one of the organizational outcome

measures, learning is an important organizational activity. Learning is

more than just classroom training; it involves feedback, goal setting,

self-development activities as well as classroom and peer training. The

general principles and operating guidelines for learning are: (a) Every

person is accountable for his or her own development and growth; (b)

Learning is tied to organizational goals and needs; (c) The 360 deg.

feedback system will provide honest feedback from co-workers and will

help define areas for improvement;

(d) The organizational employee development measures form the basis

of the organization's training plan; (e) Learning supports the

certification and recertification process; and (f) To develop and

implement a career development, education and training strategy that

supports the organizational measures and values, the Learning process

will include performance feedback and Learning Contracts.

Performance Feedback. Performance feedback will provide all

employees with information on their contribution to the organization's

performance. It will also help them identify their training and

developmental needs by pinpointing areas to strengthen and improve that

they could include in their Learning Contracts. The system will use 360

degree feedback from: (a) The Coach, (b) Peers, and (c) Customers.

The feedback mechanism will help team members to identify learning

objectives and could provide information on where to focus skill

acquisition. It would also help focus the team members on team

development. The performance feedback system is tied to learning.

In addition, team members will participate in group feedback

exercises during periodic training. The training will allow team

members to practice and develop face-to-face feedback skills. It will

include providing constructive feedback, reacting to feedback and

improving listening skills.

Learning Contract. Every team member will have a Learning Contract

that will consider needs identified by the employee development

measures, the performance feedback system and the Certification/

Recertification System. There will be learning activities identified

for each skill block and each developmental level in the organization.

Activities could include: (a) On-the-job assignments and reading

assignments to support growth; (b) Formal training sessions that would

support learning specific skills needed for development and growth; (c)

Feedback and evaluation mechanisms to measure learning as it relates to

the organization's goals and measures; (d) Mentoring to help support

developmental efforts and to provide support and feedback as needed;

(e) Individual learning plans that identify activities for which the

individual team member will be accountable to meet learning objectives;

(f) Team learning plans to identify the things a team will follow to

foster team development; (g) Methods to reinforce personal

accountability for learning; (h) Special Projects (HRM, Planning,

Instructing, ADP, Public Relations, etc.); (i) Sabbaticals; (j)

Exploring recognition/variable pay incentives that would supplement

special learning activities; and (k) Team members will be accountable

for learning and the organization will be accountable for fostering a

learning environment.

Recognition. Recognition activities provide team members and the

organization with the opportunity to celebrate the successes of team

members, teams and the organization. These efforts are often non-

monetary. The teams will help to determine the types of recognition

efforts that will be used. The recognition efforts will support the

organization's outcome measures. Based on the need and

[[Page 58963]]

purpose, this could consist of the following: (a) Organization wide

celebrations; (b) Honorary Awards; (c) Special Group Awards; (d) Team

Specific Individual Awards; (e) Core Team Specific Awards; (f)

Suggestion Awards; (g) On-the-Spot Awards; (h) Special Developmental

Opportunities; and (i) Time-Off Awards.

D. Exit Stage

Reduction-in-Force

Reduction-in-Force (RIF) will be strategic and closely tied to

organizational needs. While the current RIF process will remain

essentially the same, the demonstration project will require

adjustments to reflect skills, since positions will no longer exist.

The basic principles and operating guidelines to be used for an RIF

are: (a) Veterans preference will remain an important factor in the RIF

procedure developed; (b) Employees will be assigned a role code

relating to the role they play in the organization. For example, the

roles in the NYRO's Veterans Services and Benefits Division are Case

Technician, Case Manager and Coach. Role levels will replace the

current competitive levels; (c) Keeping in mind that service to

veterans is paramount, any RIF will be a strategic RIF focusing on

organizational outcome measures. For this reason, the organization will

use certified skills and competencies as key factors in establishing

any retention register. The organization will identify the skills

having the greatest value and assign to them greater points when

establishing a retention register. For example, the Regional Office may

need to retain individuals who are certified as having medical decision

skills or development skills. The points designating the value the

skills have in the organization will be published annually; (d) In an

RIF, retention will be determined as follows:

--Tenure of Employment. Groups will be established for career, career-

conditional and all other employees.

--Veterans Preference. (Military preference subject to section 3501(a)

of Title 5.) Sub-groups will be established for veterans having a

compensable service-connected disability of 30% or more, all other

preference eligibles, and all others.

--Performance Ratings, Core Group Rating, Skills and Competencies, and

Length of Service will be used to establish the retention register

scores. Credit for military service subject to section 352(a) (A) and

(B) of title 5. The Retention Register Point Chart (Figure 10) provides

information on the point system.

Figure 10.--Retention Register Point Chart

--------------------------------------------------------------------------------------------------------------------------------------------------------

Factor Point system

--------------------------------------------------------------------------------------------------------------------------------------------------------

Individual performance rating Pass--10 points; Fail--0 points

--------------------------------------------------------------------------------------------------------------------------------------------------------

Core group (as concept matures) Number of core groups One Two Three Four

--------------------------------------------------------------------------------------------------------------------------------------------------------

Met stretch goal....................................... 4 8 12 16

Met station goal....................................... 2 4 6 8

Did not meet goal...................................... 0 0 0 0

Skill block certification

(4) Points Set Annually and Published

Length of service

(4) 1 Point for Each Year Based on Service

Computation Date

--------------------------------------------------------------------------------------------------------------------------------------------------------

(e) To determine assignment rights between positions covered by the

demonstration project and positions not covered by the demonstration

project, grade level equivalents for groups of skills blocks will be

used; (f) In an RIF, which could be either a reduction in the number of

employees needed in a particular skill block or a reduction in the

number of skill blocks needed by the organization, an employee will be

offered when possible the opportunity to be trained in a new skill

block that is equal to the skill block being lost. The employee would

receive retained pay including the full amount of any general pay

increase during the period of training. When the training is completed,

the employee would have to go through the certification process to

demonstrate he or she is able to apply the skill. If he or she is

certified, he or she would be paid for the equivalent skill block and

retained pay would end. If the employee fails to obtain certification,

the employee will be placed on indefinite pay retention and will

receive one-half of any general pay increase until such time as the

``true'' rate equals or exceeds the retained rate of pay. (g) If an

employee cannot be offered a skill block that is equal to the skill

block being lost, but can only be offered a new skill block that is of

lesser value, the employee would be given the opportunity to learn the

new skill and to be certified for the application of the new skill

block. During the period of training necessary to be eligible for

certification in the new skill block, the employee will retain his or

her existing rate of pay and the full amount of any general pay

increase. If the employee passes certification, the employee will

receive pay for that skill block. In addition, the employee will be

placed on indefinite pay retention and will receive one-half of any

general pay increase. If the employee fails to obtain certification,

the employee will be placed on indefinite pay retention and will

receive one-half of any general pay increase until such time as the

``true'' rate equals or exceeds the retained rate of pay. (h) If an

employee cannot be offered any skill block to replace the skill block

lost, but is certified in skill blocks the organization still needs,

the employee is entitled to indefinite pay retention and will receive

one-half of any general pay increase until such time as the ``true''

rate equals or exceeds the retained rate of pay.

In determining an involuntarily separated employee's entitlement to

severance pay, the definition of ``reasonable offer'' applicable to

employees covered by the demonstration project will be included in this

section of the final plan that will be published in the Federal

Register notice and provided for in VA's operating procedures for the

demonstration project.

Employees involved in an RIF would have appeal rights to the Merit

Systems Protection Board. Employees would use the internal

Certification Appeal process for all certification actions; this appeal

process will be developed in line with the Partnership Agreement.

Exit Interviews

Exit interviews are an evaluation tool that: (a) Will provide for

the organization and the teams, feedback from individuals who are

leaving the organization or the teams, and (b) Will help evaluate

systems the Regional Office has put into place that affect customer

service and employees.

[[Page 58964]]

The process could include a survey that will ask employees who are

leaving the organization or a team with feedback tied into

organizational measures, team development, and individual development.

Exit interviews could also provide assessments of the compensation

system and the other supporting human resources systems in use in the

organization.

IV. Training

As part of the implementation process, all employees will attend an

orientation session on the new Human Resource Process that will include

demonstration project requirements, timeframes for phasing in segments

of the project, an explanation of how the project will affect them, and

future training requirements.

To understand how the systems will affect them, employees will

receive in-depth training on: (a) Pay for Applied Skills; (b) Variable

Pay; (c) The Certification and Recertification Process; (d)

Organizational Performance Management; (e) Learning Contracts; and (f)

Performance Feedback.

Employees involved in the certification process, peer training,

mentoring or in the selection system will also receive in-depth

training to help them understand their responsibilities.

Coaches will receive training in mentoring and their

responsibilities under the new systems.

V. Conversion

A. Conversion of Employees Into the Demonstration Project

The following procedures are used for converting existing employees

from the General Schedule (GS) system to the demonstration project's

Pay for Applied Skills System. They address employees who are converted

in place at the beginning of the demonstration project and also GS

employees from other organizations who enter the project through

lateral transfer or reassignment after the project is underway. No such

employee will suffer a reduction in pay at the time of conversion into

the project. If conversion into the demonstration project is

accompanied by a geographic move, the employee's GS pay entitlement in

the new geographic area will be determined prior to converting the

employee into the project.

Skill Assessment

Before being covered by the Pay for Applied Skills System, affected

employees will undergo a skills assessment to determine which skill

blocks and competencies they possess. On-board employees converting in

place at the beginning of the project will be assessed 30 to 60 days

prior to conversion as part of their pre-conversion training. The

employee's base pay will be set based on this assessment. Employees who

enter the project after initial conversion through transfer or

reassignment either from within the demonstration project sites or from

outside will have their skills assessed to determine their base pay

when entering the project, subject to organizational need.

Pay Protection

If the base pay of an on-board employee under the GS system

immediately before conversion exceeds the base pay set by the skills

assessment, the employee will be allowed two years to become certified

in additional skills in order to justify his or her pay level at the

time of conversion. The employee will continue to receive their

existing base pay (pay continuation) and receive the full general

increase during this two-year period. If at the end of the two-year

period, the employee's rate of pay exceeds the base pay justified by

the certification process, the employee will be placed on indefinite

pay retention and will receive one-half of any future general pay

increases until such time as the ``true'' rate equals or exceeds the

retained rate.

Employees who either lateral into the Pay for Applied Skills System

or transfer from another organization after the initial conversion to

the system will also undergo a skills assessment in order to determine

their base pay. For those employees who lateral into the demonstration

project from within Veterans Affairs, if the existing rate of basic pay

exceeds the base pay rate set by the skills assessment process, the

employee will be allowed two years to become certified in additional

skills in order to justify his or her pay level at the time of

conversion. The employee will continue to receive their existing base

pay (pay continuation) and receive the full general increase during

this two-year period. If at the end of the two-year period the

employee's rate of pay exceeds the base pay justified by the

certification process, the employee's pay will be reduced to the level

that reflects the actual skills attainment. For those employees who

transfer from another organization outside of the Department of

Veterans Affairs, the organization will have the flexibility to provide

pay continuation at its option.

Locality Pay

Locality pay will be an add-on payment that will remain separate

and distinct from the Pay for Applied Skills System. This will be

consistent with the way in which locality pay is handled for employees

under the General Schedule. As with GS employees, locality pay will be

considered base pay for certain purposes but not for others as

indicated in 5 CFR 531.606 (b).

Special Salary Rates

Special salary rates will no longer be applicable to demonstration

project employees. Upon entering the project -by conversion in place or

by lateral reassignment or transfer-special salary rate employees will

undergo a skills assessment, as provided above. To set a special rate

employee's base pay (including pay continuation, if applicable), his or

her GS pay must first be converted. The employee's initial base rate

under the demonstration project is derived by dividing the employee's

highest GS adjusted rate of pay (i.e., special rate or locality rate)

by the applicable locality pay factor for the employee's official duty

station. A full locality adjustment will then be added to the

employee's new demonstration base rate. Thus, the employee's locality-

adjusted rate under the demonstration project will equal the employee's

former highest GS adjusted rate of pay. Adverse action and pay

retention provisions will not apply to the conversion process because

there is no change in total salary. If the employee's converted rate of

base pay exceeds the base rate set by the skills assessment, the

employee will be allowed two years to become certified in additional

skills in order to justify his or her pay level at the time of

conversion. Any pay continuation or pay retention (as described in the

preceding section) will apply to the converted base rate.

Step Buy-Ins

For employees who are converted in place at the beginning of the

demonstration project-- at the time of conversion, each converted

employee will be given a lump-sum cash payment for the time credited to

the employee toward what would have been the employee's next within-

grade (step) increase under 5 U.S.C. 5335. (See section VIII.B. for

additional details.)

B. Conversion of Employees Out of the Demonstration Project

If a demonstration project employee is moving to a GS position not

under the demonstration project, or if the project ends and each

project employee must be converted in place back to the GS

[[Page 58965]]

system, the following procedures will be used (prior to movement or

conversion out of the demonstration project and any accompanying

geographic movement, promotion, or other simultaneous action) to

determine the GS grade and converted GS rates of pay (including any

locality rate or special rate).

Grade Conversion

When an employee is converting back to the GS system, the

employee's GS-equivalent grade under the demonstration project at the

time of conversion must be determined. The Pay for Applied Skills level

and the skill blocks and competencies possessed by the employee will be

used to determine the GS-equivalent grade. (See the Skill Block/Grade

Conversion Table in section V.C.)

For employees leaving the demonstration project for a position at

another organization, the gaining organization may request a statement

of comparison between demonstration project levels and corresponding GS

grades to attach to their application. Eligibility for outside

positions will be determined by the outside organization based on the

information in the employee's application as is true in the GS system.

The GS converted grade will be used in applying GS pay administration

rules (e.g., promotion rules); it is not necessarily the grade the

employee will have at the gaining organization.

For conversions upon termination of the project and for lateral

reassignments, the converted GS grade will automatically become the

employee's GS grade.

Pay Conversion

An employee's pay within the converted GS grade is derived by

converting the project rates to GS pay rates (including locality rates

and special rates, as applicable) before any geographic movement or

other pay-related action that coincides with the employee's movement or

conversion out of the demonstration project.

To derive an employee's converted GS rates of pay--(a) If possible,

the employee's demonstration project locality-adjusted rate will be

slotted into the highest applicable GS locality rate range or special

rate range for the employee's converted grade. If the employee's rate

falls between step rates for the applicable range, it will be raised to

the next higher step rate. The employee's GS unadjusted basic rate of

pay (i.e., excluding locality payments or special rates) will be

derived based on the grade and step associated with the converted rate.

(b) If the employee's locality-adjusted rate under the project cannot

be slotted into the range because it exceeds the maximum rate of the

converted grade, it will be converted into a locality-adjusted GS

retained rate, from which the base retained rate will be derived.

After conversion, the employee's converted GS rate is used in

applying GS pay administration rules, as necessary--e.g., promotion,

maximum payable rate determinations, pay retention. For conversions

upon termination of the project and for lateral reassignments, the

converted GS rates will automatically become the employee's GS rates.

C. Skill Block/Grade Conversion Table

Skill Based Pay places emphasis on the skills and abilities of the

individual rather than the duties of a position. However, the skills

described in the skill blocks in combination with the tasks which would

typically be assigned, given the skill level of the employee, may be

assigned a grade in the traditional sense. This will be of particular

importance when an employee leaves a site which compensates based on

skills and moves to a site that continues to compensate based on the

grade assigned to a position description. The Conversion Chart (Figure

11) was developed to provide a reference point between skill blocks and

GS grade equivalents.

Figure 11--Skill Block Conversion Chart

----------------------------------------------------------------------------------------------------------------

Skill Block Grade Associated competencies Description of work

----------------------------------------------------------------------------------------------------------------

B-1 GS-3 C1 The employee establishes

that the applicant is a

member of a class of

beneficiaries by either

comparing the

information in the

application with

official records

submitted or requesting

verification of the

information from

official records at a

records center.

B2 GS-4 C1 The employee determines

what supporting

``proofs'' or evidence

are required by the

case. As the ``proof''

material is received, it

is analyzed to establish

accuracy, validity and

acceptability under

governing legal

requirements. Also

provides straight-

forward factual

information on

preparation of forms.

B3 GS-5 C1 The employee is typically

assigned cases involving

confused or missing

records, cases involving

duplicate claimants or

cases which contain an

excessive amount of

detail. Also develops

and makes final

determination of award

for certain one-payment

awards with fixed

monetary limits.

Provides counseling on

questions covered by

guidelines or by clear-

cut procedures.

B4 GS-7 C1 and some C2 The employee makes

determinations

pertaining to such

matters as entitlement

to medical treatment,

funeral expense,

compensation and

pension. Adjudication of

such claims normally

requires determinations

relating to the

application of

appropriate regulations.

Counsels individuals

regarding a variety of

benefits or obligations

that are closely

related.

B5 GS-9 C1 and some C2 The employee prepares

decisions on basic

eligibility for

claimants to various

benefits provided by

law. He/she must analyze

and evaluate numerous

types of documents and

consider the many

variables which may

affect the amount of the

award granted. Counsels

individuals regarding a

wide variety of

comprehensive programs

of benefits and

services, each with a

different set of

regulations.

B6 GS-7 C1 and some C2 The employee makes

determinations

pertaining to such

matters as entitlement

to medical treatment,

funeral expense,

compensation and

pension. Adjudication of

such claims normally

requires determinations

relating to the

application of

appropriate regulations.

Counsels individuals

regarding a variety of

benefits or obligations

that are closely

related.

[[Page 58966]]

B7 GS-9 C1 and C2 The employee prepares

decisions on basic

eligibility for

claimants to various

benefits provided by

law. He/she must analyze

and evaluate numerous

types of documents and

consider the many

variables which may

affect the amount of the

award granted. Counsels

individuals regarding a

wide variety of

comprehensive programs

of benefits and

services, each with a

different set of

regulations.

B8 GS-11 C1 and C2 and some C3 Facilitates the

development of and

provides technical

guidance to less

experienced Case

Managers. Adjudicates

claims involving

unusually complex or

novel issues. Reviews

consideration and appeal

cases. Issues often

point up need for new

rulings. Develops facts

and evidence; defines

legal and factual

issues, researches

precedent decisions,

applies law,

regulations, policies

and procedures; and

drafts letters,

decisions and

notifications. Counsels

individuals regarding a

wide variety of distinct

types of benefits, each

with a different set of

regulations.

B9 GS-11 C1 and C2 and some C3 Facilitates the

development of and

provides technical

guidance to less

experienced Case

Managers. Adjudicates

claims involving

unusually complex or

novel issues. Reviews

consideration and appeal

cases. Issues often

point up need for new

rulings. Develops facts

and evidence; defines

legal and factual

issues, researches

precedent decisions,

applies law,

regulations, policies

and procedures; and

drafts letters,

decisions and

notifications. Counsels

individuals regarding a

wide variety of distinct

types of benefits, each

with a different set of

regulations.

B10 GS-12 C1 and C2 and some C3 Facilitates the

development of and

provides technical

guidance to less

experienced Case

Managers. Adjudicates

claims involving

unusually complex or

novel issues. Reviews

consideration and appeal

cases. Issues often

point up need for new

rulings. Develops facts

and evidence; defines

legal and factual

issues, researches

precedent decisions,

applies law,

regulations, policies

and procedures; and

drafts letters,

decisions and

notifications. Counsels

individuals regarding a

wide variety of distinct

types of benefits, each

with a different set of

regulations.

B11 GS-12 C1 and C2 and some C3 Facilitates the

development of and

provides technical

guidance to less

experienced Case

Managers. The employee

has final signatory

authority for allowing

or disallowing the novel

or unusually complex

claims. He/she is

responsible for the

propriety and technical

sufficiency of

authorization actions,

coordination with Rating

Board personnel,

identification of those

cases requiring legal

precedence decisions and

certification of appeal

actions. Serves as

Chairperson of Boards

convened to conduct

personal hearings in

cases involving

reconsiderations.

B12 GS-12 C1 and C2 and some C3 Facilitates the

development of and

provides technical

guidance to less

experienced Case

Managers. The employee

has final signatory

authority for allowing

or disallowing the novel

or unusually complex

claims. He/she is

responsible for the

propriety and technical

sufficiency of

authorization actions,

coordination with Rating

Board personnel,

identification of those

cases requiring legal

precedence decisions and

certification of appeal

actions. Serves as

Chairperson of Boards

convened to conduct

personal hearings in

cases involving

reconsiderations.

B13 GS-13 C1 and C2 and some C3 Guides team in short and

long term planning.

Resolves conflicts,

provides feedback,

counsels, rewards and

disciplines team members

as appropriate.

Facilitates and assesses

team and team members'

development. Serves as

liaison with other teams/

cores management, the

union and external

stakeholders.

B14 GS-13 C1 and C2 and some C3 Guides team in short and

long term planning.

Resolves conflicts,

provides feedback,

counsels, rewards and

disciplines team members

as appropriate.

Facilitates and assesses

team and team members'

development. Serves as

liaison with other teams/

cores management, the

union and external

stakeholders. Models

organizational values,

communicates

organizational vision,

and demonstrates

commitment to

organizational mission.

Promotes consensus and a

results oriented

approach to business.

Educates and mentors to

enhance team's

understanding of

organizational measures,

performance goals, and

achievement of stretch

goals. Encourages and

rewards innovation which

enhances customer

service.

----------------------------------------------------------------------------------------------------------------

VI. Project Duration

In accordance with section 4703 of title 5, United States Code, the

project shall terminate at the end of the 5-year period beginning on

the date on which the project takes effect. The project may continue

beyond that period to the extent necessary to validate the results of

the project or be terminated at any time during the 5-year period if

deemed unsuccessful.

VII. Evaluation Plan

A. Introduction

The demonstration project authority requires that each

demonstration project be evaluated to determine the demonstration

project's ``impact on improving public management'' (5 U.S.C. 4703).

The results from this demonstration project evaluation will serve two

primary purposes. First, the results allow us to know when we have been

successful in meeting the objectives of the project. Second, the

results serve as the basis for mid-course correction decisions. A mid-

course correction is a fine-tuning of the project based on early

feedback and knowledge gained through the evaluation.

The demonstration project evaluation will be a results oriented

evaluation focusing on the innovations' impact on organizational

outcomes, mission accomplishments, and management in general. Rather

than test each change in personnel rule and regulation

[[Page 58967]]

separately, this evaluation will consider the innovation as a whole and

treat it as a single intervention. This will allow the participants to

determine the extent to which the new skill-based pay, with a variable

pay component, in a team environment effects organizational performance

by aligning the human resources systems with business needs. In effect,

the evaluation attempts to gauge the link between human resources

management (HRM) and agency mission. In the attempt to link HRM to

outcomes, some of the more detailed process questions will be less of

an emphasis than has been in the past.

A results-oriented evaluation will allow the agency to tie the

demonstration project to other reinvention efforts and to comply with

GPRA.

B. General Methodology

The evaluation will measure the impact of a skill-based pay/

variable-based pay system in a team environment on the projects three

objectives: improve customer satisfaction, increase value to the

taxpayer, and increase opportunities for employee development. The

evaluation model shown in Figure 12 represents the consensus of the

Department of Veterans Affairs, the New York Regional Office, the

Detroit Regional Office, and the Office of Personnel Management

regarding project constraints, objectives and expectations.

The project objectives are theoretical constructs which will be

measured by other directly observable variables. As shown in Figure 12,

it is hypothesized that the personnel interventions, taken together,

will cause an increase in value to the taxpayer; an improvement in

customer satisfaction; and increased opportunities for employees to

develop and apply skills and competencies. The impact of the

intervention on these three objectives will be tracked using the five

measures of the Balanced Scorecard: cost per claim (including payroll

costs), accuracy, speed, customer satisfaction, and employee

development.

C. Three Phase Methodology

The evaluation will be conducted in three stages. Stage one will

involve collecting baseline data prior to implementation of the

demonstration project at each experimental and control site. Stage two

will provide information for mid-course correction. The third summative

stage will assess the overall impact of the project.

The evaluation will focus primarily on the overall impact of the

interventions based on before and after comparisons of the data, using

both quantitative and qualitative data. This will be accomplished using

a longitudinal design, baseline data, and control groups along with the

following three phase methodology:

(a) Interrupted Time-Series Comparison Group Design--A time series

design will be used to track cost, speed, accuracy, customer

satisfaction over time. Comparisons will be made between experimental

groups and between experimental and control groups;

(b) Case Study--A case study approach will be used to understand

the implementation, process, and dynamics of team management and their

effects on other organizational measures. Quantitative data will be

combined with focus group, interview, documentary information, and

other qualitative data sources; and

(c) Survey Analysis--An employee attitude survey will be used to

garner information on job satisfaction, organizational climate, and

employee development.

Control groups will be established that are similar to the

experimental groups. The VA will make an effort to collect the same

type of data from the control groups and experimental groups whenever

possible.

To make the evaluation cost effective and to ensure the evaluation

dovetails with on-going GPRA efforts, the evaluation will rely on data

collected for other purposes. This includes the balanced scorecard and

the employee attitude survey. Also, workforce data from CPDF and ILDRS

will be tracked to ensure that Veterans Preference, along with Merit

System Principles, are observed.

VA will enter into an agreement with an evaluator to conduct the

evaluation of this project. However, in accordance with its statutory

responsibilities, OPM will monitor the evaluation and provide oversight

throughout the project's life cycle.

Figure 12.--Evaluation Outcome Model--VA Demonstration Project

----------------------------------------------------------------------------------------------------------------

Intervention Expected effects Observable measures Data source

----------------------------------------------------------------------------------------------------------------

Skill-Based Pay, with a variable Increase value to Cost per claim.......... Balanced Scorecard.

pay component, in a team taxpayer.

environment.

Improve customer service. Accuracy................ Balanced Scorecard.

Speed................... Balanced Scorecard.

Customer satisfaction... Customer satisfaction

survey.

Improve employee pay Employee attitudes Employee attitude

satisfaction. toward pay. survey.

Improve employee Employee satisfaction... Employee attitude

development. survey.

Increase opportunities Balanced Scorecard.

for developing and

applying skills and

competencies.

Case study.

Maintain workforce Workforce composition... Workforce data.

diversity.

----------------------------------------------------------------------------------------------------------------

VIII. Demonstration Project Costs

A. Budget Strategy

The demonstration project budget strategy focuses upon: (a)

Reducing costs while continually improving service to veterans in line

with organizational outcome measures; (b) Utilizing savings to pay

employees for learning and applying skills; and (c) Rewarding employees

who contribute to the organization's success, improve service to the

customers, and ensure the taxpayer's best interests are served.

B. Step Buy-Ins

Under the GS pay system, employees progress through their assigned

grade by means of within-grade increases (WGIs) which are based on time

in step and an acceptable level of competence. Since WGIs will not be a

part of the Pay for

[[Page 58968]]

Applied Skills System, employees will receive a one time lump-sum

payment at the time of conversion to the new system.

At the time of conversion, each converted employee performing at an

acceptable level of competence will receive a lump-sum cash payment

based on the number of full weeks of the waiting period he or she has

completed towards the next within-grade increase at the time of

conversion. For example, an employee in a one-year waiting period who

has completed 8 weeks towards his or her next within-grade increase

would receive 8/52nds (.1538) of the applicable within-grade increase.

C. Cost Controls

The following cost control principles will be adhered to throughout

the demonstration project: (a) The number of skill slots established

for each skill block and groups of skill blocks will be based on

employees' ability to learn and apply the skills and on mission

requirements (e.g. organizational goals, work load) and may change over

time as conditions warrant. Changes in the subject group's skill mix

over time will be explainable based on reassessment or changes in

mission requirements; (b) The dollar adjustment amounts assigned to

skill blocks will be based on mission requirements; and (c) Increases

in average base pay under the project that exceed the increases at the

control sites will be justified by the enhanced skill level of the

subject employee group and by the improvements in organizational

outcome measures that can be attributed to those enhanced skill levels.

Cost control will further be ensured by the following specific

means: (a) Setting a maximum rate linked to the General Schedule. The

maximum rate for the Business Line Skill-Based Pay Model is GS-13, Step

10; (b) Limiting new skill block assignments to no more than 2 per

year; (c) Requiring a pay-back period for the demonstration of the new

skills; (d) Managing the opportunity to attain skill blocks based only

on organizational need; and (e) Tracking base pay increases, i.e.,

skill block attainment, and comparing them to equivalent base pay

(promotions, WGI's and QSI's) increases at the control sites on an

annual basis. Variations will be analyzed factoring in adjustments to

staffing levels, changes in skill mix, and most importantly, increases

in overall organizational productivity and other positive outcomes. The

leadership skill blocks will add the GS 14, Step 1 to GS 15, Step 10

pay ranges to the model; however, the use of these skill blocks will be

limited since competitive selection will be required for entry into

these skill blocks.

Should the need arise to add a skill block, increase the number of

slots for skill blocks or increase the value (adjustment amount) of a

skill block, VA will internally document the rationale for the change

in order to conduct proper cost analysis.

It is anticipated that, in any given year, base pay costs may vary

as compared to the control sites from time to time. Variances in base

pay costs between the demonstration project sites and the control sites

will be analyzed and explained to facilitate project evaluation. The

goal is to maintain cost neutrality over the life of the project while

still testing the merits of the new pay system. Adjustments in project

goals/processes may be required as evaluation results are analyzed.

IX. Required Waivers to Law and Regulation

The following table lists the Civil Service laws and regulations

that must be waived to implement this demonstration project. The

project is in accordance with 5 U.S.C. 4703(c) and is consistent with

all merit principles. All waivers are made only to the extent that

project provisions as outlined in this plan conflict with existing law.

Provisions of Laws or Regulations That Require Waivers--Title 5, United

States Code

------------------------------------------------------------------------

------------------------------------------------------------------------

Section 5107................. Classification of positions.

Section 5110................. Review of classification of positions.

Section 5111................. Revocations and restoration of authority

to classify positions.

Section 5112(b).............. Employee and agency requests for

classification appeals.

Chapter 53:

Secs. 5301; 5302 (1), Pay Comparability System (This waiver

(8), and (9); 5303; and applies only to the extent necessary to

5304. allow demonstration project employees to

be treated as General Schedule employees

and to allow rates of basic pay under

the demonstration project to be treated

as scheduled rates of basic pay.)

Sec. 5305............... Special Pay Authority.

Secs. 5331-5336......... General Schedule Pay Rates.

Sec. 5362............... Grade Retention.

Sec. 5363............... Pay Retention.

Chapter 55:

Sec. 5545(d)............ Hazardous Duty Differential (This waiver

applies only to the extent necessary to

allow demonstration project employees to

be treated as General Schedule

employees.)

Chapter 57:

Secs. 5753, 5754, and Recruitment and Relocation Bonuses;

5755. Retention Allowances; and Supervisory

Differentials (This waiver applies only

to the extent necessary to allow

employees and positions under the

demonstration project to be treated as

employees positions under General

Schedule.)

Chapter 75:

Sec. 7512(4)............ Adverse Action (This waiver applies only

to the extent necessary to provide that

adverse action provisions do not apply

to conversions from a General Schedule

special rate to a demonstration project

pay rate that do not result in a

reduction in the employee's total rate

of pay.)

------------------------------------------------------------------------

Code of Federal Regulations (CFR)

------------------------------------------------------------------------

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