[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]


 
                   SENIOR EXECUTIVE SERVICE BONUSES: 
                    ENSURING THE U.S. DEPARTMENT OF 
                     VETERANS AFFAIRS PROCESS WORKS 

=======================================================================

                                HEARING

                               before the

                     SUBCOMMITTEE ON OVERSIGHT AND
                             INVESTIGATIONS

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 12, 2007

                               __________

                           Serial No. 110-26

                               __________

       Printed for the use of the Committee on Veterans' Affairs

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                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     RICHARD H. BAKER, Louisiana
Dakota                               HENRY E. BROWN, Jr., South 
HARRY E. MITCHELL, Arizona           Carolina
JOHN J. HALL, New York               JEFF MILLER, Florida
PHIL HARE, Illinois                  JOHN BOOZMAN, Arkansas
MICHAEL F. DOYLE, Pennsylvania       GINNY BROWN-WAITE, Florida
SHELLEY BERKLEY, Nevada              MICHAEL R. TURNER, Ohio
JOHN T. SALAZAR, Colorado            BRIAN P. BILBRAY, California
CIRO D. RODRIGUEZ, Texas             DOUG LAMBORN, Colorado
JOE DONNELLY, Indiana                GUS M. BILIRAKIS, Florida
JERRY McNERNEY, California           VERN BUCHANAN, Florida
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota

                   Malcom A. Shorter, Staff Director

                                 ______

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                  HARRY E. MITCHELL, Arizona, Chairman

ZACHARY T. SPACE, Ohio               GINNY BROWN-WAITE, Florida, 
TIMOTHY J. WALZ, Minnesota           Ranking
CIRO D. RODRIGUEZ, Texas             CLIFF STEARNS, Florida
                                     BRIAN P. BILBRAY, California

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
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                            C O N T E N T S

                               __________

                             June 12, 2007

                                                                   Page
Senior Executive Service Bonuses: Ensuring the U.S. Department of 
  Veterans Affairs Process Works.................................     1

                           OPENING STATEMENTS

Chairman Harry E. Mitchell.......................................     1
    Prepared statement of Chairman Mitchell......................    35
Hon. Ginny Brown-Waite, Ranking Republican Member................     3
    Prepared statement of Congresswoman Brown-Waite..............    36

                               WITNESSES

U.S. Government Accountability Office, J. Christopher Mihm, 
  Managing Director, Strategic Issues............................     4
    Prepared statement of Mr. Mihm...............................    36
U.S. Department of Veterans Affairs, Hon. Gordon H. Mansfield, 
  Deputy Secretary...............................................    11
    Prepared statement of Mr. Mansfield..........................    44

                                 ______

Senior Executives Association, Carol A. Bonosaro, President......    27
    Prepared statement of Ms. Bonosaro...........................    48

                       SUBMISSION FOR THE RECORD

Stearns, Hon. Cliff, a Representative in Congress from the State 
  of Florida, statement..........................................    49

                   MATERIAL SUBMITTED FOR THE RECORD

Post-Hearing Questions and Responses for the Record:
    Hon. Harry E. Mitchell, Chairman, and Hon. Ginny Brown-Waite, 
      Ranking Republican Member, Subcommittee on Oversight and 
      Investigations, Committee on Veterans' Affairs, to Hon. 
      Gordon H. Mansfield, Deputy Secretary, U.S. Department of 
      Veterans Affairs, letter, dated October 29, 2007. [The 
      response from VA included a letter, fact sheet and notebook 
      of material. Only the letter and fact sheet are included in 
      the record of the hearing. The notebook will be retained in 
      the Subcommittee files.]...................................    51

                   SENIOR EXECUTIVE SERVICE BONUSES:
                    ENSURING THE U.S. DEPARTMENT OF
                     VETERANS AFFAIRS PROCESS WORKS

                              ----------                              


                         TUESDAY, JUNE 12, 2007

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:12 p.m., in
Room 334, Cannon House Office Building, Hon. Harry E. Mitchell
[Chairman of the Subcommittee] presiding.
    Present: Representatives Mitchell, Space, Walz, and Brown-
Waite.

    Also present: Representative Hall.

             OPENING STATEMENT OF CHAIRMAN MITCHELL

    Mr. Mitchell. Good afternoon. This hearing is about the 
process of awarding Senior Executive Service (SES) bonuses at 
the U.S. Department of Veterans Affairs (VA). This hearing will 
come to order.
    I want to thank everyone for coming today. I am also 
pleased that so many folks could attend this oversight hearing 
on the process of awarding Senior Executive Services (SES) 
bonuses at the U.S. Department of Veterans Affairs (VA).
    Before we begin this hearing, I ask unanimous consent that 
Mr. Filner, Mr. Hall, Mr. Hare, and Ms. Berkley be invited to 
sit at the dais for the full Committee hearing today. Hearing 
no objection, so ordered.
    The Members will feel free to join us at the dais.
    I know that the VA is full of hardworking, dedicated, and 
talented people. Nevertheless, there are reasons to be 
concerned that the VA bonus process is not doing what it 
should, matching pay to individual and organizational 
performance.
    Consider the following: The VA pays the highest average 
bonuses among all cabinet agencies. In 2006, 87 percent of 
Senior Executive Service employees who were considered for 
bonuses received one.
    Central office bonuses averaged $4,000 more than field 
bonuses. Particularly in the central office, there appears to 
be a case of exaggerated Lake Woebegone syndrome. Not only is 
everyone above average, almost everyone is outstanding.
    The VA does indeed do an outstanding job in many areas, but 
not all, and we hope that this oversight hearing will assist 
the VA in making sure that its bonuses are more closely matched 
to its performance.
    Performance is not just individual. It is also 
organizational. The bonus system must allocate responsibility 
where it lies. When the backlog of claims has been increasing 
for the past few years, one would not expect the senior-most 
officials of the Veterans Benefit Administration (VBA) to 
receive the maximum bonus.
    When the VA is forced to return to Congress for additional 
money, which happened twice in 2006, because the budget 
submitted to Congress was inadequate and the VA failed to keep 
Congress informed, one would not expect the senior-most 
officials of the VA responsible for the budget to receive the 
maximum bonus.
    This is not a question of blame. It is a question of 
responsibility. We can be certain that if the senior leaders of 
VBA know in advance that their bonuses will depend, at least in 
part, on the reduction in the backlog of claims, those leaders 
would bring all of their creative energy to bear on this 
problem.
    The Subcommittee is also concerned about the performance 
measures for central office employees. VA appears to be doing a 
commendable job at identifying objective, quantifiable criteria 
for evaluating its field personnel. The same is not true for 
the central office.
    It appears that central office personnel are evaluated on 
the basis of justifications written by the employees 
themselves, with no objective criteria factoring into the 
process.
    For example, the extent of the backlog of claims by VBA 
would seem to be one of the most important metrics of 
performance, but this Subcommittee has seen nothing in the 
materials provided by the VA that this metric was even 
considered by the Secretary in deciding the bonuses for senior 
leaders of VBA.
    Indeed, it appears that bonuses to the central office were
awarded primarily on the basis of seniority and proximity to 
the Secretary.
    We are also concerned about what appears to be a breakdown 
in the review process. VA is subject to oversight by the VA 
Inspector General (IG) and by the Office of Medical 
Investigations (OMI).
    The Committee has found several examples of bonuses being 
awarded to employees responsible for VA operations that have 
been the subject of highly critical IG or OMI reports in the 
same year the bonus was awarded. VA must ensure that the 
Secretary and the Personnel Review Boards are aware of, and 
consider, such reports when making bonus decisions.
    Finally, I would note that Secretary Nicholson is 
responsible by law for the ultimate determination of who gets 
bonuses and at what amounts. The Committee invited Secretary 
Nicholson to attend today's hearing, but the VA has chosen to 
send his Deputy, Mr. Mansfield, even though Mr. Mansfield 
appears to have no role in the bonus process. The Committee 
would be pleased to hear from Mr. Mansfield that this is 
incorrect.
    In addition, it appears that Secretary Nicholson has served 
as a rubber stamp for the recommendations made by his 
subordinates in sharp contrast to his predecessor. The 
Committee assumes that Mr. Mansfield will be able to address 
this issue as well.
    In closing, I want to reiterate this Committee has no 
desire to denigrate the good work of the senior managers of the 
VA. This hearing is not intended to pressure the VA into 
eliminating bonuses or to target individual VA employees.
    The VA, this Committee, and all Americans want what is best 
for our veterans. The SES bonus system can be an effective tool 
in improving the performance of the VA and Congressional 
oversight of that process will assist the VA in better matching 
performance to reward.
    I look forward to today's testimony.
    [The prepared statement of Chairman Mitchell appears on p. 3
5.]
    Before I recognize the Ranking Republican Member for her 
remarks, I would like to swear in our witnesses. And are the 
other panel members here? I would like all to stand, raise your 
right hand.
    [Witnesses sworn.]
    Thank you.
    I now recognize Ms. Brown-Waite for opening remarks.

          OPENING STATEMENT OF HON. GINNY BROWN-WAITE

    Ms. Brown-Waite. Thank you, Mr. Chairman, and I thank you 
very much for yielding.
    I would also like to thank the witnesses who are coming 
before us at this hearing. Your testimony is important to the 
oversight of this Committee in guaranteeing the process of 
assessing bonus reviews, whether it is fair, accurate, and 
appropriate.
    During our Subcommittee hearing on April 19th, discussing 
the care situation at the W.G. ``Bill'' Hefner VA Medical 
Center in Salisbury, North Carolina, I asked for a list of the 
people who were involved in the administration of care at the 
hospital and the bonuses they received over the period of time 
where there obviously was questionable quality of care rendered 
to veterans at that facility.
    The Federal Government should not be in the practice of 
providing bonuses to individuals who permit failure in the 
system under their watch. I believe that government should be 
run as a business enterprise where bonuses are used for an 
appropriate reward. But they should be limited to only the very 
best and most deserving employees, especially during a time of 
war.
    Several Members on both sides of the aisle have expressed 
frustration over the bonus situation, particularly after many 
news articles describing who received certain bonuses and 
speculation as to whether these bonuses were justly and 
appropriately applied throughout the SES bonus process.
    The news media linked bonuses to the 2005 budget shortfall 
issue, one that is very fresh on the minds of those who were 
here at the time. The media and several Members have also 
linked the bonuses to the claims backlog that is prevalent at 
the VA.
    I am concerned that we should not be too quick to judge the 
evaluation process, but rather give all the witnesses here a 
fair process to express their views.
    It is my hope, though, that through the process of this 
hearing, we will learn how the VA determines the bonus awards 
given out and whether the bonuses to members of SES at the VA 
were given in an appropriate amount related to their actual 
performance, not their performance on paper.
    I also look forward to hearing from the U.S. Government 
Accountability Office (GAO) to better understand how the Office 
of Personnel Management (OPM) certifies VA's bonus process and 
perhaps a better insight on VA's bonus justification process. I 
am sure many of the bonuses reflect the hard work and 
professionalism of VA's senior management and that is what this 
hearing is all about, to determine whether or not that process 
actually works.
    Again, I thank the Chairman for yielding and I yield back 
the balance of my time.
    Mr. Chairman, as you know, I think they have called for a 
vote very soon.
    [The prepared statement of Congresswoman Brown-Waite 
appears on p. 36.]
    Mr. Mitchell. Yes. Unfortunately, we are going to have to 
recess until we come back from a vote and it will be about an 
hour. The Committee is recessed until the sound of the gavel.
    [Recess.]
    Mr. Mitchell. The Subcommittee will come to order. We will 
now proceed to panel one. Mr. Christopher Mihm is the Managing 
Director of Strategic Issues for the U.S. Government 
Accountability Office. We look forward to hearing his unbiased 
view of the VA's process for awarding SES bonuses.
    Mr. Mihm, you are recognized for 5 minutes.

STATEMENT OF J. CHRISTOPHER MIHM, MANAGING DIRECTOR, STRATEGIC 
         ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Mihm. Thank you, Mr. Chairman.
    Mr. Chairman, Members of the Subcommittee, it is indeed a 
great honor to be here today to discuss VA's process for 
awarding performance bonuses to members of the Senior Executive 
Service.
    I must stress from the outset that while we have reviewed 
the structure of the Federal Government's SES pay and bonus 
system and its implementation at selected agencies, VA has not 
been one of the agencies, where in the past, we have been asked 
to do detailed work.
    We would be happy obviously moving forward to do work on 
behalf of the Committee if you think it would be of value. 
However, my comments today are based on just a couple of weeks 
of work we have done at VA and, therefore, must necessarily 
speak to the design of the system at VA rather than its 
implementation which is, of course, the key issue that you were 
talking about in your opening statement, Mr. Chairman.
    Mr. Mitchell, as you and Ms. Brown-Waite were mentioning in 
your opening statements, high-performing organizations 
understand that they need senior leaders who are accountable 
for results, drive continuous improvement in agency operations, 
and make sure that organizational goals and related 
transformation efforts are being achieved.
    In that regard, we have identified a set of key practices 
of effective performance management for the SES which center on 
ensuring what we have called a ``line of sight'' or linkage 
between individual performance and organizational success.
    My written statement covers a number of topics. But in the 
interest of time, I will hit on just three major points.
    First, in terms of process. Broadly consistent with what we 
have seen at other agencies, VA requires that each SES member 
have an executive performance plan or contract in place for the 
appraisal year that reflects measures that balance 
organizational results with customer satisfaction, employee 
perspectives, and other appropriate measures.
    At the end of the appraisal year, VA's Performance Review 
Boards (PRBs) review and make recommendations on SES members' 
ratings, awards, and pay adjustments based on those performance 
plans. Board members are appointed on the basis of positions 
held and consideration is given to those positions where the 
holder would have knowledge of the broadest group of 
executives.
    VA has four PRBs and they vary quite a bit in size, 
composition, and number of SES members considered for bonuses. 
Each PRB has within the scope of VA's policies developed its 
own procedures and criteria for making recommendations.
    Second, in terms of the bonuses awarded. In 2005, according 
to OPM's most recent governmentwide data, VA awarded a higher 
average bonus amount to its career SES than any other cabinet-
level department. On the other hand, OPM data also show that 
six other cabinet-level departments awarded bonuses to a higher 
percentage of their career SES members.
    More recently for fiscal year 2006, VA awarded an average 
of $16,600 in bonuses to 87 percent of its career SES. At 
headquarters, 82 percent of the SES received a bonus, and 90 
percent received a bonus in the field.
    Those in headquarters were awarded, as you mentioned in 
your opening statement, an average of about $4,000 more in 
bonuses than those in the field. And as I noted, 2006 data that 
would allow us to compare VA with the other agencies is not yet 
available.
    My third point, and this was something that Ms. Brown-Waite 
raised on OPM and the Office of Management and Budget's (OMB's) 
role: OPM and OMB evaluate agencies' SES and senior-level 
employee performance appraisal systems against nine 
certification criteria jointly developed by those two agencies.
    OPM also issues guidance to help agencies improve their 
systems and reviews submissions to ensure that they meet the 
criteria.
    OMB for its part primarily considers overall measures of 
agencies' program performance and the extent to which mission 
goals are being met.
    Let me conclude by noting that today's hearing is both 
timely and important as interest grows in better linking 
Federal employee pay to the market, individual roles and 
responsibilities, and performance.
    We at GAO strongly believe that SES need to lead by example 
in this area and be role models for how to properly, fairly, 
and effectively implement such changes.
    Let me end there and I would obviously be pleased to take 
any questions that you or other Members of the Subcommittee may 
have.
    [The prepared statement of Mr. Mihm appears on p. 36.]
    Mr. Mitchell. Thank you. I just have one question.
    You testified that high-performing organizations understand 
that they need senior leaders who are held accountable, who 
drive continuous improvements, and stimulate support efforts to 
integrate human capital approaches.
    What are key steps that agencies, including the VA, can 
take in that regard?
    Mr. Mihm. There are several things, Mr. Chairman. I think 
most important is that organizations need to have a good set of 
performance plans and strategic plans in place. That is, they 
need to make sure that there is agreement between them, 
stakeholders, and the Congress on what is going to be achieved 
in terms of the programmatic outcomes and how progress will be 
measured.
    The second thing, once they have that in place, they need 
to make sure that they create again what we have called the 
``line of sight,'' that is that they drill down those program 
goals into individual SES contracts so that we have clear 
accountability and assurance that if this Senior Executive 
achieves this level of performance, it will deliver meaningful 
results for clients and program customers and for the American 
people.
    We find very often in agencies, even some of the agencies 
that will have nice, sound, well-thought-out strategic plans, 
that there is not that linkage down to individual activities. 
There is no ``line of sight'' in place. So that line of sight 
is the second very important point.
    Third is that there needs to be meaningful distinctions in 
performance. We need to make sure that we are identifying 
performance based on program goals and rewarding our top 
performers with bonuses and permanent pay increases, that we 
are giving others that are the majority in the middle 
categories opportunities to improve, and to the extent that 
there are people that just are not being successful, that we 
have the good information that we need to deal with 
unsuccessful performance.
    Those are really three of the most key things that we think 
need to take place.
    Mr. Mitchell. Thank you.
    And I yield my time. Ms. Brown-Waite.
    Ms. Brown-Waite. I thank the Chairman.
    Mr. Mihm, I apologize for not being here. I was over on the 
floor and then I had to go up to my office. And I will be 
leaving for an amendment on the floor when they actually get to 
the amendment process.
    Your testimony indicates that the VA uses four Performance 
Review Boards. These Boards review the Veterans Health 
Administration (VHA), VBA, VA Headquarters, and the VA IG. I 
understand that the functions are different for each of these 
distinct Boards and the accompanying criteria for the business 
lines, but should not the review process reflect one VA 
departmental human resource system?
    Mr. Mihm. That is an excellent point, ma'am. And at a 
minimum, to the extent that there are differences, and there 
are differences in the case of the VA, to the extent that there 
are differences in an agency among the various PRBs that are in 
place, they should be known and considered differences. That 
is, there should be a business case for those differences and 
not merely, ``Well, we do it this way and someone else does it 
another way.''
    In the case of VA, as you mentioned, they have the four 
PRBs. The one that covers VHA and the separate one that covers 
VBA do have to vet their procedures through the Veterans 
Affairs PRB which covers central staff offices as well as 
cemeteries.
    We have not had the opportunity yet to get a good 
understanding that would really allow me to speak directly to 
your question about why are these differences and are they 
considered. What are the reasons? There may be excellent 
reasons. We do not know. But at a minimum, one would want to 
again make sure that those reasons are thoughtful and 
considered and not just idiosyncratic.
    Ms. Brown-Waite. Do you know if other agencies' SES 
categories have more than one Board?
    Mr. Mihm. Many agencies will have one or more or several 
PRBs, yes, ma'am. In that case, VA is consistent with other 
agencies.
    Ms. Brown-Waite. Okay. But is there one system or a 
different disparate system?
    Mr. Mihm. I am sorry. I did not understand your question at 
first. I am not sure on that. Let me give you a more thoughtful 
answer if I could for the record rather than have to correct 
something.
    Ms. Brown-Waite. Okay. Do you know what actually 
precipitated VA's decision to change its policies on SES 
performance plans?
    Mr. Mihm. If I could ask for a clarification as to if there 
is a particular change that you have in mind because I guess 
the reason I ask that is that overall, VA's changes came about 
consistent with what other agencies did with congressional 
authorization in 2003 and 2004 that allowed agencies with 
certified, from OPM and OMB, performance management systems to 
raise their pay caps and provide additional bonuses.
    Ms. Brown-Waite. Okay. So it was OPM directed?
    Mr. Mihm. It was OPM and OMB.
    Ms. Brown-Waite. For all agencies?
    Mr. Mihm. Yes, ma'am. What happens is that agencies have to 
independently apply to OPM and OMB. They have to provide OPM 
and OMB with a variety of information based on the nine 
criteria that OPM and OMB have jointly developed, and they get 
either full certification for their performance management 
system or provisional certification.
    Each year since 2004, VA has had provisional certification. 
They have additional paperwork that is due to OMB for the 
current year by the end of June, and they tell us they expect 
to submit that paperwork to them.
    Most executive agencies have received provisional 
certification, that is they are allowed to raise their pay cap, 
but they are still not consistent with all the OPM/OMB 
criteria.
    Ms. Brown-Waite. Are they as consistent or less consistent 
as other agencies?
    Mr. Mihm. Well, one of the things that tripped VA in the 
past has been a sticking point with a number of agencies. It 
gets back to one of the things I was discussing with the 
Chairman and that is the targets that are in SES performance 
contracts. OPM was asking VA to make sure that they were 
results oriented, that there was a sizeable percentage of those 
targets that had quantitative measures on those.
    It is exactly, ma'am, the point that you were making in 
your opening statement: If we have hard data that something is 
not happening, that health outcomes are not happening, for 
example, we need to know both from an improvement opportunity 
how can we get better, but also who is responsible for that.
    The way you do that is making sure that you have SES 
contracts that have those requirements, quantitative 
requirements in there.
    Ms. Brown-Waite. I thank the gentleman, and I yield back.
    Mr. Mitchell. Thank you.
    Mr. Space.
    Mr. Space. Pass for questions, Mr. Chairman. Thank you.
    Mr. Mitchell. Mr. Walz.
    Mr. Walz. Thank you, Mr. Chairman and Ranking Member.
    Thank you, Mr. Mihm, for taking your time to be here. I 
just had a couple of questions.
    First of all, to put this into context, the last three 
positions I have held over the last few years is high school 
teacher, Command Sergeant Major in the Army National Guard, and 
Member of Congress, not necessarily in order of importance. 
None had performance bonuses.
    My question to you is, is there any quantitative data that 
shows we are losing people in the SES because we are not 
providing them with bonus pay because this program was set up 
for performance bonus not as a means of offsetting the 
difference between public and private sector?
    If it is being used to do that, do we not need to go back 
and reevaluate the pay system in general then and alleviate 
this misperception that if the agency is underperforming, we 
are still going to give bonuses because we are under threat of 
losing these people?
    Mr. Mihm. You are raising an excellent point, sir, in that 
we have issued some work to some of your colleagues on the 
House Government Reform and Oversight Committee that asked us 
to look at both executive pay, judicial pay, and SES pay.
    And one of the things that we came up with or developed as 
part of that is some principles for Federal pay. You want it to 
be market sensitive. You want it to be flexible. You want it to 
be sustainable over time and that it is affordable.
    There is a natural but unfortunate tendency to conflate the 
performance award process with the pay process. If we are not 
paying market pay, and in some cases, I am certain we are not, 
in many cases, we are probably fine and in some cases, we may 
be over market, but if we are not paying to market, then 
Congress and all of us need to address that.
    The performance appraisal and the bonus system were not 
intended to really be the vehicle to address those types of 
issues. Those should be on a separate track.
    Mr. Walz. All right. Very good. And I just had one more and 
I am not sure on this one, Mr. Mihm, if you can help me with 
this.
    I know the nine criteria that we are measuring here on the 
performance. The one that I guess strikes and steps out at me 
is the accountability one. That is the one that I would say we 
are very concerned with.
    And, again, is there any correlation that we can prove 
between individual performance and individual performance 
bonuses and agency performance because our ultimate goal here 
is across the spectrum agency performance to delivering better 
care to our veterans?
    So I could see 39 out of 42 highly performing individuals 
and if the agency is not performing to that level, is it fair 
to say that that should be almost an overriding criteria of 
these nine in your opinion?
    Mr. Mihm. It should certainly be, sir, a very compelling 
one. I am not trying to parse words there. But certainly over 
time, it is a reasonable expectation on behalf of the American 
people, on behalf of the Congress and the American people that 
Senior Executives, that those of us that have been entrusted 
with Senior Executive positions in government, that are doing 
right, well paid by the standards of most Americans, are able 
to demonstrate that we are giving meaningful results to our 
fellow citizens.
    And if we are, then there should be a bonus system that 
appropriately recognizes and rewards that. But if not, we need 
to be able to address those problems as well. We are only in 
the first couple years of meaningful pay for performance for 
Senior Executives.
    It is over time, and I am not talking decades. We are 
talking relatively soon, we should be able to start seeing 
pretty strong lines of sight and linkages between 
organizational success and the individual awards that accompany 
those.
    Mr. Walz. Thanks, Mr. Mihm.
    I yield back my time, Mr. Chairman.
    Mr. Mitchell. Thank you.
    Mr. Hall.
    Mr. Hall. Thank you, Chairman Mitchell and Ranking Member 
Brown-Waite, for including us from other Subcommittees in this 
hearing.
    Mr. Mihm, thank you for your testimony. I want to follow up 
Mr. Walz's questions by asking, there is a media report stating 
that the average VA bonus in 2002 was $8,120 and the current 
average is $16,606. Has there been any change in Federal law 
that you know of that would explain this rapid increase?
    Mr. Mihm. The big changes were beginning with 2004. There 
were two separate pieces of statute. But in 2004 was when it 
kicked in that agencies with certified performance management 
systems were authorized to raise both their pay limits and 
their total compensation limits. And so that would allow for 
authorizing an increase.
    Mr. Hall. So other departments would have been doing the 
same kind of thing?
    Mr. Mihm. You will see that there were increases in many 
cases across agencies.
    Mr. Hall. Can you explain in greater detail why the VA 
received only provisional certification from OPM rather than 
full certification? It appears that OPM had some concerns about 
the VA bonus review system but granted it provisional 
certification for 3 years.
    Mr. Mihm. Yes, sir. The provisional certification from OPM, 
and this was fairly consistent with what other agencies were 
getting, similar types of feedback, turned on large measure the 
degree to which the performance contracts for SESers at VA had 
results oriented, quantitative targets in them that 
appropriately balanced organizational results, outcomes, an 
employee perspective or busi-
ness perspective, and customer satisfaction, customer response 
categories.
    The VA, we have looked at their 2006 or a sample of their 
2006 contracts and begun to look at their 2007 contracts. We 
have seen that they have been making changes in response to OPM 
and OMB, and OPM has indicated that they have been making 
changes.
    As I mentioned to an earlier question, they are up for 
recertification. They have to submit information to OPM by the 
end of June of this year and so all of us will have a better 
feel as to whether or not they have made sufficient progress.
    Mr. Hall. So we might expect that they will provide 
information on or evidence of the outstanding performance that 
merits these bonuses?
    Mr. Mihm. I am sorry, sir?
    Mr. Hall. We might expect or you might expect to see by the 
end of this month, this June----
    Mr. Mihm. What we will see, what we should see, all of us, 
is by the end of this month, VA's package to OPM in which there 
will be an attempt to show against the nine criteria, including 
organizational results, how they have improved their 
performance management system.
    Mr. Hall. That will be something to look forward to.
    Mr. Mihm. Yes, sir.
    Mr. Hall. And have you seen any information that would 
suggest that the VA has provided bonus awards to hospital 
directors for holding down costs by not replacing senior staff?
    Mr. Mihm. We have not seen that, but we have not looked. I 
want to be clear on that. We would be happy to undertake that 
work if that is something that the Committee would be 
interested in.
    Mr. Hall. Just a thought. And how does the 87 percent of 
SES officials at VA who received bonuses compare with the 
percentage of bonuses paid at other departments?
    Mr. Mihm. It is among the highest in government. There are 
six other agencies that had higher percentages of that. VA 
gives the highest dollar amount in average bonuses. There are 
six other agencies that gave bonuses to a higher percentage of 
their SES.
We would all like to work there, the Lake Woebegone factor,
Mr. Chairman. There are some agencies where 95 percent of the 
SESers received bonuses. Great work if you can get it.
    Mr. Hall. Thank you very much, sir. No further questions.
    I yield back. Thank you, Mr. Chairman.
    Mr. Mitchell. Thank you.
    Are there any other questions of Mr. Mihm?
    [No response.]
    Thank you very much.
    Mr. Mihm. A pleasure.
    Mr. Mitchell. Thank you.
    I welcome panel two to the witness table. We are pleased to 
have Deputy Secretary Gordon Mansfield as the principal 
presenter for this panel.
    This Committee has a long and professional working 
relationship with Mr. Mansfield in all of his roles at VA, from 
his time serving as Assistant Secretary for Congressional 
Legislative Affairs to his present position as Deputy 
Secretary.
    Mr. Mansfield is a highly decorated military combat veteran 
having served two tours of duty in Vietnam. His military awards 
include the Distinguished Service Cross, the Bronze Star, two 
Purple Hearts, and the Combat Infantryman's Badge.
    Mr. Secretary, would you please introduce your team when 
you get them all settled there. And you are recognized for 5 
minutes after you introduce your team.

 STATEMENT OF HON. GORDON H. MANSFIELD, DEPUTY SECRETARY, U.S. 
   DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY SHARON K. 
    BARNES, DEPUTY CHIEF OF STAFF; GERALDINE V. BREAKFIELD, 
   ASSOCIATE DEPUTY UNDER SECRETARY FOR MANAGEMENT, VETERANS 
BENEFITS ADMINISTRATION; THOMAS HOGAN, SPECIAL ASSISTANT TO THE 
  ASSISTANT SECRETARY FOR HUMAN RESOURCES AND ADMINISTRATION, 
OFFICE OF HUMAN RESOURCES AND ADMINISTRATION; GERALD M. CROSS, 
   M.D., FAAFP, ACTING PRINCIPAL DEPUTY UNDER SECRETARY FOR 
HEALTH, VETERANS HEALTH ADMINISTRATION; AND WILLIAM F. FEELEY, 
 MSW, FACHE, DEPUTY UNDER SECRETARY FOR HEALTH FOR OPERATIONS 
AND MANAGEMENT, VETERANS HEALTH ADMINISTRATION, U.S. DEPARTMENT 
                      OF VETERANS AFFAIRS

    Mr. Mansfield. Thank you, Mr. Chairman.
    I am accompanied today by Sharon Barnes, the Deputy Chief 
of Staff; Dr. Cross, the Acting Principal Deputy Under 
Secretary for Health; William Feeley, the Deputy Under 
Secretary for Health; and Geraldine Breakfield, who is our 
Associate Deputy Under Secretary for Management in VBA; and Mr. 
Thomas Hogan.
    I request that my full testimony be accepted for the 
record.
    Mr. Chairman, Members of the Subcommittee, I am pleased to 
come before you to provide an overview of the performance 
management system governing VA's career Senior Executive 
Service Performance Bonus Program.
    Federal law and Office of Personnel Management policies 
guide the executive branch in matters relating to compensation 
of Federal employees. Those policies acknowledge that 
performance awards are integral to the government's ability to 
attract, retain, and reward experienced, high-quality career 
executives.
    The statute also establishes the procedure for appointing 
PRBs, stipulating the majority of members are to be career 
appointees. And last, the statute assigns to the Secretary of 
Veterans Affairs final approval of awards recommended by each 
PRB for the Department.
    The Office of Personnel Management regulations further 
amplify the statutory framework. OPM regulations set procedures 
for establishing PRBs and state the criteria for determining 
performance standards and related metrics. And OPM annually 
reviews and certifies the results of PRB activities to ensure 
compliance with its rules and regulations.
    In keeping with the statute and adhering to OPM 
regulations, VA's four PRBs direct a rigorous and transparent 
performance management process. They establish performance 
standards that are objective, measurable, and to the maximum 
extent possible, quantifiable.
    Our executives report on their specific levels of 
achievement measured against these standards and their 
supervisors subsequently recommend performance ratings, pay 
adjustments, and bonuses. These bonus recommendations are 
reviewed by the governing PRB to ensure equitable and 
consistent interpretation and application throughout the 
Department. The Board then forwards its recommendations to the 
Secretary for his final review and approval as per the statute.
    VA has 321 career SES positions. This represents a ratio of 
Senior Executives to the general employee population of 
approximately 750 to 1. This ratio represents one of the 
broadest spans of control in the Federal Government.
    Our SES corps provides oversight to a staff of nearly 
240,000 employees and a budget of more than $80 billion. In 
point, we operate the Nation's largest integrated healthcare 
system with 153 hospitals, 882 outpatient clinics, 46 
domiciliaries, and 207 Vet Centers. Fully 198,000 employees 
staff those broad-based programs and services of VHA.
    Our $40 billion benefits system, supported by over 13,000 
employees, disburses disability payments each month to 2.7 
million recipients and pensions to more than 324,000 
beneficiaries.
    We operate the country's largest burial and cemetery 
system. This year, more than 103,000 veterans will be laid to 
rest in one of our 125 national cemeteries whose operations are 
supported by a staff of 1,527 individuals. Since 2005, we have 
established five new national cemeteries and will open six more 
by early 2009.
    VA's central office is the nexus for an array of programs 
and services that reach from Maine to Manila. Central office 
sets VA-wide policy and procedures, prepares the Department's 
budget, oversees financial operations, and manages our 
information technology infrastructure.
    Working for the second largest agency in the Federal 
Government, each VA Senior Executive has responsibility for 
far-reaching and complex programs, significant financial 
resources and major capital assets, and a large number of 
reporting staff.
    Over the past 3 years, the average VA SES bonus amount is 
in the range of $16,000. This compares to a governmentwide 
average of approximately $14,000. A number of agencies report a 
mean SES bonus figure that falls well within the $2,000 window 
between VA and governmentwide averages.
    For example, fiscal year 2005 data show that the average 
SES bonus was 15,900 plus dollars at the Department of 
Agriculture, 15,800 plus dollars at NASA, and $15,173 at the 
Treasury Department.
    In response to recent congressional inquiries about SES 
bonuses, Secretary Nicholson requested an OPM review of VA's 
SES performance-based pay system. I am including the OPM report 
as an attachment and will briefly provide a summary of its 
findings and request that it be included in the record, if I 
may.
    OPM found that, number one, the design and implementation 
of VA's SES performance management system meets all statutory 
and regulatory requirements.
    Number two, executives who are members of PRBs do not make 
recommendations regarding their own pay adjustments and awards 
or the pay adjustments and awards of other executives in their 
chain of command.
    Number three, VA is making distinction in performance as 
evidenced in its ratings, pay, and awards decisions.
    Number four, VA executives are rated and rewarded primarily 
based on organizational results balanced against customer and 
employee perspectives and additional executive competencies.
    I would especially recommend to the staff and the Members 
of the Committee that you look at attachment three to the 
report. It gives much broader detail to some of the questions 
that have been raised.
    Secretary Nicholson has agreed to implement the 
recommendations made as a result of the OPM analysis.
    Mr. Chairman and Members of the Committee, I am extremely 
proud of the Senior Executives with whom I work. They are a 
highly competent and committed group of leaders who excel in 
managing an organization that, if in the private sector, would 
rank as a Fortune 50 company.
    Most of our SES have dedicated their entire careers to the 
welfare of America's veterans. Many are retirement eligible and 
were they to retire, they could quickly be hired at 
considerably higher salaries.
    While the bonus dollar amounts under discussion are 
sizeable, and we recognize that, they are paid to seasoned and 
successful executives in recognition of solid and significant 
contributions to public service. And they pale in comparison 
with compensation and bonuses common to executives with similar 
credentials working in the private sector.
    Good government is a reflection of the people who make it 
that way and their competency, their dedication, their 
leadership are essential to the Department of Veterans Affairs 
as they are to the government at large.
    VA remains committed to the statutory imperative of 
executive bonuses to both reward and to encourage continued 
excellence in performance.
    Mr. Chairman, before I conclude my remarks, I would make 
the point that I understand some of the issues raised and I 
look forward to the discussion. But I would recognize as my 
full statement submitted for the record points out that we are 
serving this year 5.8 million veterans in our healthcare 
system, a record, more than ever before 5.8 million veterans 
are being seen at what is touted in many publications as the 
best healthcare system in the United States, the best 
healthcare system in the United States.
    As indicated in my testimony, there are millions of people, 
millions of veterans and their survivors and dependents who are 
receiving compensation and pension checks each and every month. 
There are hundreds of thousands of individuals, active duty and 
veterans who are getting new houses, a place to live through 
the VA Housing Program. There is an insurance program that 
would make us the sixth largest insurance company standing on 
itself. And, again, I would just make the point that these are 
good, honest, dedicated, hard-working leaders who have been 
able to be identified and that takes a special process itself 
as Senior Executive Service members, members of the Senior 
Executive Service----
    Mr. Mitchell. Thank you.
    Mr. Mansfield [continuing]. Have a special place in our 
workforce. And, Mr. Chairman, that concludes my prepared 
remarks and I will attempt to answer any questions you may 
have.
    [The prepared statement of Mr. Mansfield appears on p. 44.]
    Mr. Mitchell. Thank you. Your testimony was a good overview 
of what your Department does.
    And all the things you said toward the end of the people 
that are serving and so on, I just assume you do that because 
that is your job, that is your responsibility. And that is the 
charge that Congress has given the Veterans Department.
    I have a series of questions which will take very simple 
answers. In the documents that the VA has provided this 
Subcommittee, it does not appear you had any role in reviewing 
the bonuses; is that correct?
    Mr. Mansfield. No, that is not correct. As the Deputy 
Secretary and as the Chief Operating Officer, I accept 
responsibility for what operates in the Department. The process 
is set up so that an Assistant Secretary who is an expert and 
has experts to work with him in this area gets the information, 
does the process work before that final document goes to the 
Secretary----
    Mr. Mitchell. So you reviewed all of the recommendations 
for the bonuses; is that correct?
    Mr. Mansfield. I review the initial submission that goes to 
the Secretary for his decision and I review what goes to the 
Chief of Staff for his discussion with the Secretary of what 
the final answers are.
    Mr. Mitchell. Did you serve on any of the PRBs, the Review 
Boards?
    Mr. Mansfield. No, sir, I did not.
    Mr. Mitchell. Then did you read the recommendation memo 
that you sent?
    Mr. Mansfield. Sir, I am having a little trouble hearing.
    Mr. Mitchell. Did you read the bonus recommendation memo 
that evidently you sent to the Secretary? Did you advise the 
Secretary on all the bonuses? Did you advise the Secretary on 
these bonuses?
    Mr. Mansfield. In the fact that I forwarded the final 
document, yes, sir.
    Mr. Mitchell. And did you recommend any changes?
    Mr. Mansfield. The question is again, sir, to the operation 
of the statute and the regulations and the VA setup where the 
Secretary makes the final decision.
    Mr. Mitchell. Correct. And he makes the final decisions on 
all SES bonuses. And, you know, the Subcommittee did invite the 
Secretary to come to this hearing. Do you know why he is not 
here?
    Mr. Mansfield. Not available to make it, sir.
    Mr. Mitchell. Pardon?
    Mr. Mansfield. Not able according to his schedule to make 
it, sir.
    Mr. Mitchell. We mailed out the invitation May 24th.
    Mr. Mansfield. I do not have a specific, you know----
    Mr. Mitchell. All right.
    Mr. Mansfield. I will go back and ask him and come back and 
give you an answer.
    Mr. Mitchell. Very good. So the Secretary was provided a 
memo with all the recommended bonuses? He has it all?
    Mr. Mansfield. Again, sir, I----
    Mr. Mitchell. The Secretary has provided a memo of all the 
recommended bonuses; is that correct?
    Mr. Mansfield. Yes.
    Mr. Mitchell. Does the Secretary of Veterans Affairs have a 
memo of all the recommended bonuses?
    Mr. Mansfield. All the recommended bonuses went to the 
Secretary and were finalized by him.
    Mr. Mitchell. Okay. And that memo includes the ratings 
outstanding, excellent, fully satisfactory, but, otherwise, no 
information about the PRB recommendation in any particular 
bonus is listed; is that correct? Is there any information 
listed besides outstanding, excellent, fully satisfactory? Is 
there any justification for these?
    Mr. Mansfield. In the final decision memo that goes to him, 
as you indicated, that is the clear memo. The information from 
any of the PRBs is available if requested or if needed.
    Mr. Mitchell. But what he receives is only outstanding, 
excellent, or fully satisfactory; is that correct?
    Mr. Mansfield. Yes, to the best of my knowledge.
    Mr. Mitchell. That is all? So there is no particular 
followup that he has with his recommendation?
    Mr. Mansfield. Well, he has his knowledge of the Department 
and what has happened in different parts of it and who is doing 
what type of a job and any recommendations that may be 
presented to him.
    Mr. Mitchell. Okay. Did you actually read the write-ups for 
the individual justification for each bonus?
    Mr. Mansfield. No, sir, I did not read all of them.
    Mr. Mitchell. Did the Secretary read them?
    Mr. Mansfield. That I do not know, sir.
    Mr. Mitchell. Let me ask this then. How is the Secretary 
supposed to meet his legal obligation to decide on bonuses if 
he knows nothing about the justifications for the bonuses?
    Mr. Mansfield. Well, again, sir, these bonuses are 
performance driven and depend on a combination of what the 
Department has done in total and how that is measured. And that 
is handled through a monthly performance review which measures 
across the Department on what we are doing in specific areas 
and where we are having problems and any corrections that need 
to be made over the course of the year.
    It deals with the strategic plan which the Secretary signs 
off on and it is his direction for the total direction of the 
organization. It depends in some cases on employee satisfaction 
and there are reports from OPM that come in that----
    Mr. Mitchell. I understand that. But those justifications 
are not listed.
    Mr. Mansfield. It depends on patient or customer reviews--
--
    Mr. Mitchell. Right.
    Mr. Mansfield [continuing]. That come in.
    Mr. Mitchell. But all those justifications are not listed 
with the recommendation, are they? There are just three 
categories.
    Mr. Mansfield. Not all in one package, but they are----
    Mr. Mitchell. Okay.
    Mr. Mansfield [continuing]. A part of the leadership of the 
Department's knowledge about what is going on in the 
Department.
    Mr. Mitchell. Are you aware that in the 2 years that 
Secretary Nicholson has been approving bonuses he has changed 
only one out of hundreds of recommendations? He has changed 
one. By contrast, in 2003, Secretary Principi changed over 30 
of the recommendations.
    Mr. Mansfield. Well, part of it as mentioned by the 
previous testifier, we are in a different system now since 
2004. I do not have an exact knowledge about how many that 
Secretary Nicholson has changed, but I believe it is more than 
one.
    Mr. Mitchell. Go back and check.
    I will yield my time to Ms. Brown-Waite.
    Ms. Brown-Waite. Thank you.
    I do not think you actually answered the question of did 
you make any recommendations to the Secretary? Did you make any 
recommendations to the Secretary when the list came down for 
the bonuses? I listened very carefully and I did not hear a yes 
or a no answer.
    Mr. Mansfield. The list went forward with some verbal 
recommendations from me as to some people on that list.
    Ms. Brown-Waite. And is this the normal practice? Did you 
do this with the previous Secretary?
    Mr. Mansfield. Yes.
    Ms. Brown-Waite. So you made a few. Define a few for me.
    Mr. Mansfield. One of the issues of concern is, for 
example, conformance with IG issues or other reports on 
performance throughout the Department. And in some cases, there 
may be IG issues that are under investigation, under review 
that are not, for example, what we call public knowledge that I 
would be briefed on.
    Ms. Brown-Waite. Well, with respect to the bonuses given to 
senior staff at the Asheville Medical Center during the 2004 to 
2005 timeframe, given that the Office of Medical Inspector was 
notified and began an investigation on November 30th, 2004, why 
were allegations of possible patient care issues not made known 
prior to the final Senior Executive bonus approval decision in 
December and again in December of 2005 after the final OMI 
report was issued? Is there some reason why, for example, this 
was not part and parcel of that process? We are talking about 
quality of care which certainly should be part of the criteria.
    Mr. Mansfield. I agree with you a hundred percent. I am 
sorry. I would agree with you a hundred percent that quality of 
care is one of the issues we are concerned about, one of the 
biggest things we are concerned about. I am sorry. I do not 
have all the facts and figures for Asheville in front of me, 
but I would be prepared to go look at that and come back and 
report to the Committee or to you, however you should like that 
handled.
    Ms. Brown-Waite. I believe that there were already letters 
written by individuals as well as Members of Congress about the 
quality of care at that facility. And, yet, the Director got a 
very sizeable bonus.
    Mr. Mansfield. I do not have all the facts in front of me, 
Madam Congresswoman. I would, as I said, go back and look at 
that and answer the question for the record or if you wish for 
me to come and speak to you, I would do that.
    Ms. Brown-Waite. No. I would like you to submit subsequent 
testimony on that very situation in North Carolina.
    [The following was subsequently received from Mr. 
Mansfield:]

          In August and December, 2004, the Office of the Medical 
        Inspector (OMI) conducted site visits in the Asheville VA 
        Medical Center (VAMC) Nursing Home Care Unit (NHCU) also known 
        as the Extended Care Rehabilitation Center (ECRC). The purpose 
        of the visits was to review the quality of care in the ECRC. 
        That reports made several recommendations for improvements 
        which were implemented (some of which were implemented within 
        hours of the OMI notification of the issue). In addition, a 
        third OMI report was conducted in July 2005 which revealed 
        clinical leadership issues. These were addressed immediately 
        and the clinical managers who were involved eventually left the 
        VA.
          The nursing home was closed for admissions from December 17, 
        2004-January 28, 2005. One of the recommendations from the OMI 
        was to detail an Associate Chief Nursing Service (ACNS) and 
        Geriatrician to the facility to work with the facility as they 
        addressed other recommendations. On January 23, 2005, VHA 
        detailed the ACNS for Geriatrics from Durham VAMC and a 
        Geriatrician from the Detroit VAMC to the facility to provide 
        temporary clinical leadership. On January 28, 2005, this team 
        provided an exit report to Asheville VAMC Leadership and 
        conducted weekly calls to monitor the implementation of their 
        recommendations for improvement. One of the recommendations 
        included approval for limited admissions (no more than one per 
        week per month) beginning with admissions to the ECRC rehab 
        program starting on January 28, 2005. On March 10, 2005, 
        additional admissions were approved for ECRC skilled nursing, 
        restorative and maintenance programs. On May 31, 2005, 
        admissions were opened to the ECRC respite program and 
        admissions were increased to four residents per floor per week. 
        On August 3, 2005, admissions were opened to the ECRC hospice 
        program. Nursing Leadership monitors ECRC staffing levels on a 
        daily basis.
          While the OMI review and results were taken into 
        consideration when rating the Director's FY-2005 performance, 
        other factors were also considered. For example, among other 
        accomplishments under his leadership that year, the Medical 
        Center successfully received full Joint Commission on the 
        Accreditation of Healthcare Organizations (JCAHO) accreditation 
        in all programs, achieved Level 1 scores (highest level) in 
        clinical performance levels, reduced waiting lists, scored 
        among the highest Medical Centers in patient satisfaction and 
        held pharmacy costs to just a 1.27% increase while providing 
        over 50,000 more prescribed drugs than in previous years. The 
        Director also led the Medical Center through flood disasters 
        that resulted from hurricanes, where the hospital was without 
        water and power for extended periods of time.
          This timeframe encompassed the FY-2005 rating period and the 
        Director in charge of Asheville VAMC during this period 
        received a performance rating of Excellent.
          This rating decision included consideration of the OMI 
        reviews. His prior performance ratings had been Outstanding in 
        FY-04 and Excellent in the two preceding years.
          The VHA did not diminish the importance of the OMI findings 
        when considering the rating and performance bonus for the 
        Medical Center Director, however it did consider all of the 
        other positive accomplishments that occurred during that same 
        time period. The bonus he was granted was comparable to other 
        Medical Center Directors in Veterans Integrated Service Network 
        (VISN) 6 who also received a final rating of Excellent.
          That Director is no longer with the Asheville VAMC having 
        retired on March 3, 2006.

    Ms. Brown-Waite. The other thing I want to know is, do you 
think that the IG should review the list of bonuses prior to 
the approval of the Secretary to set up some sort of an early 
warning system that there is an ongoing investigative issue?
    Mr. Mansfield. That does happen.
    Ms. Brown-Waite. So that does happen now. Could you tell me 
what the process is.
    Mr. Mansfield. The Assistant Secretary for Human Resources 
Administration who in effect is the Secretary or the person in 
charge of the process, the paperwork, contacts the IG, shares 
that information with him, and gets a report back or I get a 
report back on any issues that may be of concern.
    Ms. Brown-Waite. So is this actually taken into 
consideration?
    Mr. Mansfield. Yes, ma'am.
    Ms. Brown-Waite. So have bonuses actually been reduced as a 
result of an ongoing investigation or the conclusion of an 
investigation which was not very favorable?
    Mr. Mansfield. Yes.
    Ms. Brown-Waite. Could you also tell us how many SES 
employees in your agency have been reduced in rank and/or 
salary and/or fired? And if it involved a transfer, which I 
know that the VA is known for transferring people, was it under 
adverse conditions?
    Mr. Mansfield. Obviously I do not have that information----
    Ms. Brown-Waite. I know you do not, sir.
    Mr. Mansfield [continuing]. Right in front of me, but I can 
tell you that some of each of those categories have taken place 
and that I will get the information for you.
    Ms. Brown-Waite. Okay. I would appreciate it.
    Mr. Mansfield. Let me just make a point, though, that it is 
awful hard to terminate anybody in the Federal Government.
    Mr. Mitchell. Even SES?
    Ms. Brown-Waite. Even SES, the Chairman asked.
    Mr. Mansfield. Including SES, yes. They still have appeal 
rights to the Board.
    Ms. Brown-Waite. I know they have appeal rights, sir, but 
we are talking about competency here. And I think that this is 
a question which deserves an answer and I would appreciate your 
getting back to us on it.
    Additionally, Mr. Chairman, just one other quick question.
    OPM recently wrote back to Secretary Nicholson with some 
findings and recommendations. The Secretary had asked OPM to 
conduct a comprehensive review of the systems and policies that 
VA has in place to operate its performance management system 
for Senior Executives.
    It is relatively new. Their response was dated June 1st. As 
soon as possible, I think that the Committee deserves to have 
shared with it the responses of the Secretary to these 
recommendations.
    Mr. Mansfield. Yes ma'am.
    Ms. Brown-Waite. I yield back.
    Mr. Mitchell. Thank you.
    Mr. Space.
    Mr. Space. Thank you, Mr. Chairman.
    Notwithstanding what may be a policy problem that I view 
with giving taxpayer moneys away in the form of bonuses, I have 
some questions about the independent nature of these 
Performance Review Boards.
    Is it not true that, I think, three of the four PRBs are 
comprised entirely of departmental employees, VA employees?
    Mr. Mansfield. Yes.
    Mr. Space. Do you see that as creating the appearance of 
improprietary or a conflict in asking VA departmental employees 
to make assessments regarding their own peers without any 
independent oversight?
    Mr. Mansfield. I understand that there has been discussion 
staff to staff and I understand the issue you are raising here. 
But I would make the point that, for example, since many of us 
come out of the military, the military seems to do it that way 
when you are doing officer reviews, for example, and that is a 
point.
    We are dealing with the most senior, most qualified, most 
professional part of the government. We are dealing with some 
cases with the healthcare arena and a benefits arena. So I can 
see reasons why it has come up that way. But I also understand 
the question being raised and I would be, as I have explained, 
more than happy to bring that one back and talk to the 
Secretary about it and see if there are reasons on why we 
should change it and, if so, how.
    I think also we have to recognize that we are in OPM's area 
here and I am not sure how many other agencies do it that way 
either.
    Mr. Space. And it just seems to me that a system that is 
comprised wholly of departmental employees, many of whom know 
each other, I am quite certain that those members of these PRBs 
are colleagues of one another, that that creates a system that 
is bound to encourage some peer pressure among departmental 
employees to essentially take care of each other.
    And, again, apart from what I see to be an inherent problem 
in creating a system that uses taxpayer moneys to provide 
bonuses in a subjective fashion regardless of the number of 
criteria, it is difficult to argue that it is not a subjective 
process.
    I would think that bringing some independence to the system 
of review would be appropriate. Is it fair to say that that is 
an accurate statement, that some level of independence would be 
required to assure the taxpayers that their monies are being 
well spent?
    Mr. Mansfield. As I indicated, I understand the issue that 
you are raising and I would be more than happy to bring that 
one back, sit down and look at it, talk to OPM. And I 
understand what you are saying that bringing to bear some 
outside influence may make the system work better.
    Ms. Brown-Waite. Mr. Chairman, I have to leave for an 
amendment on the floor. I would ask the gentleman if he would 
suspend and I would also ask if the Members would give 
unanimous consent. Obviously we are kind of missing some 
Members here who also are on the floor or in markups. And if 
the Committee would allow Mr. Wu to continue to ask questions 
in my absence.
    Mr. Mitchell. If there is no objection, so ordered.
    Mr. Space. No objection.
    Ms. Brown-Waite. I would appreciate that. Thank you. Thank 
you for suspending.
    Mr. Space. You are welcome.
    And I yield back my time, Mr. Chairman. Thank you.
    Mr. Mitchell. Thank you.
    Mr. Walz.
    Mr. Walz. Thank you, Mr. Chairman.
    And thank you, Secretary Mansfield. First and foremost, 
your commitment and dedication to this Nation and our veterans 
will never be questioned. The service you have given to this 
Nation and the service you have given to our veterans is not at 
issue here. I think that needs to be made very clear.
    I appreciate you and your staff coming up here. And I hope 
you understand and see us as allies in this to try and deliver 
the best possible service to our veterans.
    And one of the things that I am very happy to see you 
talked about in there was good government, Secretary, and we 
believe that one of the key roles and one of the things, quite 
honestly, many of us here feel have been missing is oversight. 
And that is one of the key responsibilities of a Member of 
Congress.
    So please understand we are here to ask these questions to 
be allies with you, teammates with you, do whatever we can do 
to try to get to the heart of this. And I hope you will 
understand that the concern of this, not just as Members of 
Congress and oversight, but from our veterans' groups, quite 
honestly, it has been made very loud and clear to us.
    So I appreciate where you are coming from on this, but I 
hope you can understand at least public perception-wise why 
this is such a pressing issue and why we brought you up here to 
talk about these. So, please.
    And a couple of things. I would have to be quite honest. 
Many of us believe and we have seen this with declining budgets 
in terms of what the real need was. You are exactly right. You 
are servicing more veterans and with more critical issues 
spread across a broader spectrum of issues than at almost any 
time before.
    And your organization in the VA is doing so brilliantly. I 
will say that we understand that. But there are glaring 
examples of where we can do better and that is what we are 
trying to get at.
    And in my case, I guess, I do not want to speak for anyone 
else up here, especially in some of the senior positions, there 
is a belief that they need to tow the Administration's budget. 
They need to tow on where things are coming into the VA and 
saying that is enough money, you can do it.
    When I hear you say one of the issues is 750 to 1 in the 
span of control, I agree with you. That is ridiculously high. 
But the fix on this, I do not believe is trying to give a bonus 
to keep somebody around to get there. The fix would be can we 
provide more staff for oversight. Is there a better way or is 
there an organizational fix other than that.
    The next thing I would say is this is very difficult for me 
to try to sell back home when I go to my VA facilities and talk 
to my RNs who have a shortage of nurses and want to know. Now, 
you may say it is a different budget, it is a different issue 
at hand, we have the supervision of that.
    The public does not care about that when they are asking 
why is there a shortage of nurses, why am I waiting 177 days as 
an average to have my claim adjudicated, and I see that the 
entire top of the organization received bonuses. That is one of 
the issues.
    We keep coming back to this issue of pay parity, but 
bonuses have nothing to do with pay parity. The bonuses are 
performance. If we have an issue with pay parity, ask us to fix 
that, ask Congress to fix it. Then we do not get ourselves 
caught in these jams where the perception of the organization 
is handing out favored bonuses when the organization is not 
performing all the way across the board.
    And I just kind of want to turn it over to you on that 
because I want to make it very clear, Mr. Mansfield. The work 
you do for veterans, I applaud you. You are doing. As a 
veteran, I know that. We are trying to make it even better. And 
I think and my perception of this was these bonuses are making 
it harder for us to do our job and that is why we want to get 
to the heart of this.
    So I am not asking you a specific question on this. I am 
not putting you on the spot on this. I just want to make it 
very clear what I am hearing from my constituents, what I as a 
veteran see in this, and what I see our responsibility is in 
working with you.
    Mr. Mansfield. Well, thank you, sir, number one, for the 
personal comments. I appreciate that.
    I would also make the point as I made many previous times 
at this witness table that I understand and respect and am 
honored to be able to participate in what is a constitutional 
process. The executive branch represented here and you folks 
represented there and I do understand how the process is 
supposed to work and appreciate that. And I do understand and 
agree that when it works right, veterans are the ones that 
benefit from it and that is what we both want. And I understand 
that is what you want and that is what I want.
    Mr. Walz. Thank you.
    I yield back, Mr. Chairman.
    Mr. Mitchell. Thank you.
    Mr. Hall.
    Mr. Hall. Thank you, Mr. Chairman.
    I would echo Mr. Walz's statement. Thank you for your 
service and certainly, you know, as a man in uniform and also 
in the Department of Veterans Affairs, no one questions your 
commitment to veterans and to this country.
    And so we are all of us trying to represent our 
constituents and also to do what we can to try to make the 
system work better.
    I am happy to see in your written statement that bonuses 
are based on one and only one criteria, demonstrated 
performance and that is as it should be.
    When Secretary Nicholson was in this room, he testified 
that the 177-day waiting time for a disability claim to be 
processed was unacceptable in his words. He suggested that 125 
days might be acceptable, nearly 2 months shorter than the 
current average.
    So, with so many of the top positions here in the 
Department being graded as excellent, but a key area like that 
being unacceptable, my question is, which is it? I mean, is 
there a systemic problem or is there a person who maybe was 
graded excellent who should have been graded unacceptable? How 
can a performance standard like that be unacceptable when it 
seems that across the board, there are bonuses being given?
    Mr. Mansfield. First of all, sir, I think we have to 
recognize that what we are judging is a person across the total 
package, individuals with different responsibilities, and some 
of it could be actually doing cases, some of it could be 
training, some of it could be budget work, some of it could be 
public affairs, some of it could be sitting at this table.
    So there are all kinds of different elements that go into 
this. And when you get to the Senior Executive Service, you 
have I believe, the best of the best, those that by their 
experience and their capabilities and their ability to go out 
and get extra training and move into this, you are dealing with 
good people.
    I have to tell you I am a little concerned that we are 
getting into an area where we are almost naming some people. 
They have been named in the press, I think unfairly and 
unmercifully, and that is a concern.
    The other issue, though, when you are talking about the 177 
days, I would suggest to you that part of that is the result of 
laws that this Congress has passed because you believe that 
certain aspects of the process for the veterans benefit require 
additional time, additional waiting, up to 60 days waiting time 
for evidence to be submitted.
    And in addition to that, there are some court cases that 
have also extended this time. So it is not as simple as just 
one issue and we recognize that.
    The other point I would make is that while we are talking 
about the so-called backlog in the traditional area of 
compensation and pension, that backlog right now is about 
159,000 cases because we agreed and Congress agreed in 
oversight hearings a few years ago under a previous Secretary 
that 250,000 cases in the inventory is what we should have. Now 
we are up around 399,000 or more.
    So we have done an awful lot to keep things moving. This 
year should be a record, over 800,000 cases decided, more than 
for quite a while.
    And I would make the point also that in addition to just 
the number of cases, 800,000, the number of issues per case has 
increased exponentially. And our Benefits Delivery at Discharge 
Program, over the course of 4 years of implementing that and 
putting it in practice, we have seen the average number of 
issues per case grow from three or four to seven or eight. That 
in effect doubles the number of cases you have to deal with. 
You may require twice as many medical exams to be able to have 
the information at hand to make a decision.
    I am not trying to excuse the fact that we are not where we 
should be, the Secretary said we are not where we should be, 
177 days is too long. We have made some adjustments, for 
example, to bring Gulf War on Terrorism veterans, those coming 
back, those veterans, men and women, coming back from the 
combat zone, to put them at the head of the line and be able to 
adjust for their adjustment back into civilian society.
    We are not where we should be, but we are working awful 
hard to get there. And I would still say we have some damn good 
people who are doing the job and I believe that they are damn 
good people. And I do not believe that we need to take it from 
exceptional down to throw them out the door.
    Mr. Hall. I do not think anybody is suggesting that, sir.
    Mr. Mitchell. That is not the alternative. That is 
extremes.
    Mr. Hall. Mr. Chairman, may I ask a second question, 
please?
    In a full Committee hearing on May 9th, Secretary Nicholson 
stated that no political appointee at the Department has 
received a bonus. However, CRS research found a staff member, 
Paul Hutter, who received a bonus as having a PAS designation. 
Furthermore, there are White House releases from June and 
September 2006 announcing the President's designation of Mr. 
Hutter to two positions.
    Do you know if Mr. Hutter was in a PAS position at the time 
that he received his bonus and can the Department clarify his 
status?
    Mr. Mansfield. Sir, I am under oath and I would have to go 
back and check the record for that one.
    Mr. Hall. Okay. Thank you.
    I yield back. Thank you, Mr. Chairman.
    Mr. Mansfield. And report back obviously.
    Mr. Mitchell. Thank you.
    I want to go back to what Mr. Hall was asking and part of 
my opening statement. And I am going to read this again.
    When the backlog of claims has been increasing for the past 
few years and the trend is up every year, one would not expect 
the senior most official of the Veterans Benefit Administration 
to receive the maximum bonus when the trend is going away from 
what we would like, yet this person received the maximum bonus.
    When the VA is forced to return to Congress for additional 
money, which happened twice in 2006 because the budget 
submitted to Congress was inadequate and the VA failed to keep 
Congress informed, yet this person who is in charge of that 
received the maximum bonus.
    Is that what you would call good pay for performance? And I 
am not saying these people do not do a good job. I would say 
there are probably many people throughout the VA who get no 
bonuses that are doing terrific jobs.
    Mr. Mansfield. Mr. Chairman, I----
    Mr. Mitchell. We are talking about exceptional. Yes.
    Mr. Mansfield. Mr. Chairman, I understand the point you are 
making. I agree with you. And I would also make the point that 
we do need to go back and look at that. I am making the point 
that you made. We have some good people working for us and let 
us make sure we do not take the wrong information and arrive at 
the wrong decision on that.
    Mr. Mitchell. No. We are just talking about bonuses. We are 
not talking about the performance of the people in your 
Department.
    Let me ask a couple other questions. This Subcommittee has 
cross-referenced reports from the Office of Medical 
Investigations and the VA Inspector General to the bonus 
recommendations. Does the VA do this? Do you cross-reference 
what the Office of Medical Investigations and VA Inspector, do 
you cross-reference these in making your recommendations?
    Mr. Mansfield. Sir, as I indicated, there is a final review 
by the IG when we get through the total process. My 
understanding is that at the local level, at a hospital or VISN 
level, that OMI information is taken into consideration. But, 
again, being under oath, I would go back and check the record 
and submit that one.
    Mr. Mitchell. The Subcommittee has found four or five 
instances where bonuses were awarded to employees with direct 
authority over VA facilities that were subject to highly 
negative OMI and IG reports. Are you aware of this?
    Mr. Mansfield. I am aware of some staff decision and some 
briefings I have had in preparation for coming up here, sir. 
And, again, considering the circumstances, I probably want to 
go back and submit an answer for the record.
    Mr. Mitchell. I believe that what I have been briefed on 
says that it may be a question of timing. The incident 
happened. The person responsible went somewhere else. Somebody 
else came into the same facility. But I would request to submit 
for the record the answer on that one.
    Let me ask your opinion. Do you believe that the VA, when 
it makes its bonuses and recommendations at the end of the 
year, do you believe that they should have the OMI and IG 
reports in front of them when they are making these 
recommendations?
    Mr. Mansfield. Yes, sir. That could be a process change 
that we would guarantee that those were--I do not think at the 
end, though. I think what we want is to have them involved in 
the early discussion and decisionmaking stage to make sure that 
the people that are making the first set of decisions are aware 
of that where we can have that.
    Mr. Mitchell. Okay. Thank you.
    Mr. Wu.
    Mr. Wu. Chairman Mitchell, I appreciate your indulgence in 
Ms. Brown-Waite's request for staff to ask questions.
    And, Mr. Hall, thank you for your indulgence also.
    I understand what Ms. Brown-Waite has been asking and what 
Chairman Mitchell has been asking and in consultation with 
Ranking Member Buyer about this entire bonus process.
    And I just would like to reiterate what I have heard other 
Members say and the Chairman and the Ranking Member that this 
hearing for us is not to denigrate the hardworking employees at 
VA, and there are many, and the mission that they accomplish. 
But it is here for our purposes on this side to look at what is 
dysfunctional about the process.
    And without trying to indict by anecdote, there are a 
variety of bonuses here that in the personal opinion of the 
staff and myself in review and in consultation with your staff 
bringing to question how those bonuses are awarded by some 
measurable performance metric. There are others in there that 
they probably walk on water and deserve more.
    But there is a process that we think probably needs to be 
repaired and I would bring to mind what Ms. Brown-Waite said. 
In referencing the letter to Secretary Nicholson by Ms. 
Springer from OPM dated 1 June about the review that Secretary 
Nicholson asked right after the negative articles came out to 
take a look at the system to see how copasetic it was.
    And they came up with findings that said that you were 
involved and the Department was doing the process that was 
certified, but they came up with four distinct recommendations 
that talk and link performance, individual performance to 
institutional performance.
    And I guess what Ms. Brown-Waite would like to know, not 
guess, but she said we would like to have a report back of 
those four recommendations and when the Department intends on 
implementing by specific hard milestone dates and take 
seriously what OPM's recommendations to cure or to address some 
of those issues.
    So I would just reiterate that Ms. Brown-Waite would 
certainly like to see that and I think that at the same time, 
Mr. Buyer would like to see that also.
    Mr. Mansfield. Let me make sure that you and the Committee 
Members understand. I did not mean that the Committee Members 
were denigrating anybody. I meant that the publication 
indicated some people individually was denigrating them and I 
think unfairly. And that is a problem with me since I know who 
these people are and I know how hard they work and I know how 
dedicated they are and how much they care and they do a good 
job. So I hope that message did not come across.
    I believe that we are here to do better. I believe that we 
are here to make the constitutional process work with the goal 
of service and benefits to veterans being improved. And that is 
what my goal is being here.
    So I understand what you are saying. My testimony indicated 
that Secretary Nicholson in his review of the information has 
said that we will adopt them. I will give you an exact date, 
you know, some date certain as to when we can do that.
    I would imagine that when you look at what we are talking 
about here, the four on page 46, that the next go around for 
this, we should be able to get these in place for the next 
process.
    Mr. Wu. Right. That was the bottom line. These new 
processes and recommendations would be in place before the next 
bonus reviews.
    Mr. Mansfield. Well, again, this is the Secretary's system. 
He said that he will implement them. I will double check that 
we will get them done. I do not see any reason why we cannot 
get these implemented in the next----
    Mr. Wu. I would like to revisit one of Ms. Brown-Waite's 
questions on the IG review or OMI review that Chairman Mitchell 
has also addressed.
    It is my distinct memory when we were briefed by VA staff 
prior to this hearing when that question came up whether the IG 
gets to review all bonus recommendations prior to the 
Secretary's approval so as not to embarrass the Secretary on 
approving a Presidential award of $44,000, that there is some 
criminal investigation going on on that individual. It would 
behoove the Department to have the IG and other review 
mechanisms in place prior to the Secretary putting ink to the 
paper.
    Mr. Mansfield. As I indicated in my answer, that does 
happen now and has been happening.
    Mr. Wu. Ms. Brown-Waite wanted to know when that happened 
because when we were briefed, the staff said they were not sure 
if it was happening and they would go back and check.
    Mr. Mansfield. Well, I know it is happening because I have 
been involved in it. So you want a date certain on when 
something went over?
    Mr. Wu. She asked when there was a review by the IG prior 
to--does the IG get to see the recommended list prior to the 
Secretary signing the final----
    Mr. Mansfield. All right.
    Mr. Wu [continuing]. And when did that happen. And I would 
like to address a second question. I know I----
    Mr. Mansfield. I would like to make sure that I finish the 
answer to the first one----
    Mr. Wu. Yes, sir.
    Mr. Mansfield [continuing]. Which is to make sure that--you 
mentioned a dysfunctional system. I hope you do not understand 
that you think that we come up here and say we got an OPM 
report and we are perfect. We understand that we have a massive 
organization spread all over the place out there and that there 
are potential issues involved in it.
    But I would make the point that we are attempting as much 
as we can to make sure that this system works the way it is 
intended to work, the way the statute that this Congress set it 
up with implies that it should work, the way the OPM rules 
work.
    So, again, I do not think it is a dysfunctional system. We 
may have some questions about what some of the final results 
are here, but I would hope we would agree as OPM says that 
basically the system is working.
    There are some issues here, Mr. Chairman, that you brought 
up and other Members have brought up that we have agreed to 
look at, some of them in these recommendations to put in place 
to again make it better if we can do that.
    Mr. Mitchell. Thank you. Just one comment before we end.
    Again, about the denigration of individuals. You know, 
these individuals that are listed here with the bonuses, they 
did not give themselves the bonuses. The system did and that is 
what we are trying to correct because we think that in some 
cases that people should be held responsible for, as you said, 
accountability and that you had some performance measures and 
that when we find some things that seem to be going backward 
instead of the way we would like and that is wait time and so 
on and budget processes, it is not these members' faults who 
got the bonuses. I think it is those people above them who were 
operating the system and that is what we are trying to correct.
    Mr. Mansfield. Well, sir, there are two points. One is 
there are performance measures that are in place throughout the 
Department. As indicated by the previous testimony and as 
indicated in some of the OPM reports and in the certification 
letter, we need to do a better job of bringing those metrics 
down into the individual SES performance review to ensure that 
in addition to the Department requirements, which is a part of 
the certification, that we have--I agree with you--we need to 
do a better job with the metrics for the individuals.
    Mr. Mitchell. That is right. And I think also those at the 
very top of the central office ought to have some metrics to 
measure them by as well which today they do not.
    Thank you very much for your testimony and this ends the 
testimony for panel two. Thank you.
    Mr. Mansfield. Thank you, Mr. Chairman.
    [The U.S. Department of Veterans Affairs provided a large 
notebook of documents to respond to the many requests for 
information during the hearing.]
    Mr. Mitchell. 
We will now proceed to panel three. Carol Bonosaro is the 
President of the Senior Executives Association (SEA). The 
Senior Executives Association acts as the voice and advocate 
for the career Executive Corps. We look forward to hearing her 
view on VA's process for awarding SES bonuses.
    I hope I pronounced your name correctly.
    Ms. Bonosaro. Absolutely.
    Mr. Mitchell. Thank you. You will have 5 minutes. Thank 
you.

 STATEMENT OF CAROL A. BONOSARO, PRESIDENT, SENIOR EXECUTIVES 
                          ASSOCIATION

    Ms. Bonosaro. Members of the Subcommittee, the Senior 
Executives Association, the professional association 
representing the interests of the career Senior Executive 
Service, appreciates the opportunity to testify, and I ask that 
my written----
    Mr. Mitchell. Excuse me. I do not think your microphone is 
on.
    Ms. Bonosaro. Well, it has the green light on.
    Mr. Mitchell. Oh. Maybe bring it closer.
    Ms. Bonosaro. We appreciate the opportunity to testify, and 
I ask that my written testimony be entered into the record.
    As previous witnesses have testified, SES performance 
awards are made with substantial 
oversight by Performance Review Boards. In every agency, PRB 
members must and do exempt themselves from decisions about 
their own performance appraisals and awards.
    Some in Congress have called for PRB members to be 
ineligible for performance awards. That would be a serious 
mistake in our view. Agencies select their highest performing 
career executives as PRB members as impartial jurors of their 
peers. Excluding them from receiving awards will result in only 
those executives not recommended for awards being eligible to 
serve and the quality of service may well be lessened.
    Further, who would wish to accept appointment to a PRB when 
it would make them ineligible to receive an award?
    We believe that the publicity surrounding bonuses has been 
unfair and misdirected. All Americans desire to give our 
veterans the best care and service possible and none more than 
the VA career executives who dedicated their careers to doing 
just that and who are well worth their salaries and awards.
    Representative Hall has said he would be introducing 
legislation to place a hold on this year's performance awards. 
Restricting awards because of disagreement with policy 
decisions will unfairly punish career executives and achieve 
nothing in relation to those decisions.
    As the Subcommittee is aware, career executives work at the 
direction of political appointees. Concerns with Administration 
decisions to request less money than is believed needed for 
healthcare and claims processing should be directed at the 
Administration's policymakers, not at the career executives who 
are required to implement their decisions.

    The SES was created in 1979 to encourage and reward the 
highest performers in government. It provides both greater 
risks and greater rewards than the General Schedule. All pay 
raises and all awards are discretionary and are made on the 
basis of performance. Senior Executives do not receive locality 
pay. They do not receive within grade increases. They do not 
receive an annual cost-of-living increase.

    If a Senior Executive is not rated as fully successful or 
better, his or her salary can be decreased as much as 10 
percent. Those rated fully successful often do not even receive 
an increase in salary that covers increases in the cost of 
living.

    Senior Executives have no appeal rights if they are removed 
from the SES or Federal service for poor performance. All of 
this is unlike the General Schedule.

    With regard to IG investigations, I would point out to you 
that bonuses and even Presidential Rank Awards have been denied 
to SESers due to ongoing investigations. However, those SESers 
who have been exonerated following those denials have been 
unable to be made whole later. So I would urge the Committee to 
tread carefully in that regard.

    High-performing career executives can and often do receive 
substantial pay raises or performance awards. Up to 10 percent 
of a Department's or Agency's SES pay pool can be set aside for 
annual performance awards of from 5 to 20 percent of a career 
executive's salary. As one would expect, top performers 
consistently receive awards which are central to keeping them 
in the VA and throughout government.

    If Congress decides to limit performance awards, the best 
career executives will have another incentive to leave for the 
private sector or retirement rather than continue to work in a 
system that provides only a mere fraction of the compensation 
they are worth and can earn in the private sector, often 100 
percent more. Many career SES earn as much as $70,000 a year 
less than some of the VA medical staff that they supervise.

    These performance awards are not lavish frills and limiting 
them would be particularly unwise since 90 percent of those in 
the Senior Executive Service are eligible to retire over the 
next decade.

    Further, SEA consistently receives reports that many 
talented and accomplished GS-14's and 15's who would be prime 
candidates to the SES are dissuaded from aspiring to the 
Service since they would take on additional responsibilities, 
enjoy fewer rights, and their pay adjustments would be far less 
reliable.

    As a former career executive myself and as President of SEA 
for 20 years, I can assure you that these career executives are 
driven by a love for public service over financial gain. They 
are dedicated to their work and putting in 70-hour weeks is not 
rare. They make the best decisions possible with the resources 
they are provided.
    Thank you.
    [The prepared statement of Ms. Bonosaro appears on p. 48.]
    Mr. Mitchell. Thank you.
    Let me ask a couple questions. Would you agree that the 
bonuses in question are for the purpose of rewarding 
exceptional performance and not used to reduce disparity 
between government and private sector compensation?
    Ms. Bonosaro. Yes. That is the purpose they are intended 
for, but I will point out to you, sir, that until really 2005, 
because it took about a year for the new pay system to be 
implemented, 70 percent of the members of the Senior Executive 
Service were all drawing the same salary.
    In that case and because so little wiggle room, if you 
will, has been created, in fact, by the new higher limit, which 
is $12,500 more between a certified and uncertified agency, 
that it was not uncommon since so many of them are indeed high 
performing to look to that bonus pool as a way of dealing with 
pay compression and now, of course, the lack of locality pay as 
well.
    Mr. Mitchell. Let me ask you this----
    Ms. Bonosaro. I am not suggesting that is what they do, but 
that is----
    Mr. Mitchell. Well, it sounds like it. Let me ask you this. 
Would it be a violation of statute and regulations to use 
bonuses for purposes of reducing such disparity?
    Ms. Bonosaro. Would it be illegal?
    Mr. Mitchell. Yes.
    Ms. Bonosaro. I do not know. I think I would ask my general 
counsel that because----
    Mr. Mitchell. Well, it is. It is not to be used for pay 
disparity or for reducing these disparities. Bonuses were for 
exceptional service. And I have some feel for this because I 
was a high school teacher and I understand when they talk about 
people who teach and those who get out because of pay and so 
on. And I knew what I was going to be paid when I went in and I 
stuck it out as a career, 28 years.
    And I think on the one hand you are saying that these 
people could be making so much more money other places and they 
should and we are going to lose them and so on, and then you 
end up by saying but these people are not here for that. They 
are here for the love of their work and for what they are 
doing. You seem to be saying you want the cake and you want to 
eat it too.
    And I come from a background of government service and I 
understand the dedication of government service, but I think 
also when somebody comes in and tries to put business practices 
into government and they come up with pay for performance, the 
idea of pay for performance is exactly that. It is pay for 
performance.
    Everybody is expected to do an excellent job all the time. 
That is what they are paid for. They are expected to come to 
work every 
day. They are expected to put in a full day's work. That is expe
cted.
    But there are some people who go over and beyond and I 
think you would find that it is probably illegal to use bonuses 
for reducing this disparity. And I think that is what we are 
trying to drive at. If there needs to be a pay increase, that 
is what Congress should be doing.
    Ms. Bonosaro. With regard to pay, it is quite true that I 
have talked about the pay they can earn in the private sector 
and that becomes a factor as they do consider how long to stay 
in government.
    I think it is clear they are not in government because of 
the pay, but pay decisions, bonus decisions can be a 
demotivator. It can be very demoralizing when you know that you 
have been putting in--I talked to a group of executives last 
week at Army who said, look, we are putting in 70-, 80-hour 
weeks. This is a time of war. We love what we do, we care about 
what we do, but when certain decisions are made that are in a 
sense not respectful of them, it is demoralizing.
    So I just wanted to put that in that context. But also with 
regard to bonuses, I am not suggesting to you that they are not 
made on the basis of performance. But when you have a great 
number of high performers as you do in the Senior Executive 
Service--because if you did not have that, you would have to 
question how they were selected to begin with and the selection 
is very difficult--you expect them to be performing well.
    Mr. Mitchell. It sounds like Lake Woebegone where everyone 
is above average and it sounds like to me that everybody who 
happens to be in SES is above average and there is no bell 
curve going back to my teaching experience.
    Ms. Bonosaro. Well, I would argue that actually I do not 
think there is. I mean, when you look at a basketball team, you 
do not expect a bell curve of height. When I look at the Senior 
Executive Service, I do not see a bell curve of competence and 
capability. They had to work too hard to get there. The 
requirements for entry are very high.
    Mr. Mitchell. Thank you.
    Mr. Wu.
    Mr. Wu. Thank you, Chairman Mitchell.
    Ms. Bonosaro, I think that we had SES Association testify 
one time before this Committee about 8 years ago. I appreciate 
your 27 years there.
    Where were you an SES just out of curiosity?
    Ms. Bonosaro. Well, I started my career at the then Bureau 
of the Budget, but I ended it at the U.S. Commission on Civil 
Rights.
    Mr. Wu. Just out of curiosity, I do not think that anyone 
here in our Members and speaking for our side of our Members 
are saying that SESs are not the cream of the crop, and there 
are many there.
    But at the same time and reflecting on what Chairman 
Mitchell said, there is a bell curve. There are good SESers and 
there are marginal SESers. I mean, it is just going to be that 
way. That is the universe there.
    I know that you defend and you represent that constituency. 
Just out of curiosity, do you know how many VA SESers that the 
SES Association is representing for adverse personnel actions?
    Ms. Bonosaro. We do not represent any individual.
    Mr. Wu. But you provide counsel for those that are 
appealing their SES or whatever personnel actions are at the 
VA?
    Ms. Bonosaro. No, sir. There may be some confusion. Our 
General Counsel is under contract to us and he provides 
services to us. He has a law firm and who that law firm 
represents is a matter of his service as an attorney. That has 
nothing to do with the Senior Executives Association.
    The most that we do is if a member calls, for example, and 
says I have had a notice of an action, what do you recommend I 
do, we have someone on staff who gives them advice, but it is 
not as an attorney. It is not representation.
    Mr. Wu. But would you clear up a perception for me at 
least. You said in your testimony that there are no appeal 
rights?
    Ms. Bonosaro. Correct, not for removal, nothing effective. 
I believe you can request a hearing at the MSPB. There is no 
transcript made. So it is a totally ineffective right.
    Mr. Wu. There are probably several SESers in my memory that 
were attempted to be removed by the VA for nonperformance and 
are still within the VA payroll after years.
    Ms. Bonosaro. We have had this conversation over the years 
with political appointees and have always said that our view is 
if there is a nonperforming Senior Executive and you have made 
clear what the performance standards are, given them an 
opportunity to meet them, and they do not do it, then get rid 
of them.
    And there is no reason you cannot. As I say, they have no 
effective appeal rights. About the only thing they can do is 
argue a prohibited personnel practice. That is extremely 
difficult to prove.
    So if they are not removed, it is for a failure of will on 
the part of the appointee who is supervising them, frankly.
    Mr. Wu. I am not sure if your association keeps any of 
these statistics, but if you do, just enlighten us a little 
bit. How many Senior Executives have had a salary decrease as a 
result of poor performance? How many have been terminated? Are 
statistics kept concerning poor performance punishments for any 
of these Senior Executives governmentwide?
    Ms. Bonosaro. Well, unfortunately, you are going to have to 
ask Office of Personnel Management for that. I have not seen 
the data. I have seen data on average salary adjustments at 
different levels and so on, but I have not seen the data you 
have asked for.
    I will say one thing, however. Very often instead of taking 
action, direct action on a removal, what happens, and you may 
well be aware of this, is the Senior Executive is encouraged to 
retire. They are proposed to be geographically reassigned. They 
are sent signals that their life will not be terribly 
comfortable and most often that is what happens.
    So you do not see high numbers of removals, but I would 
suggest to you that there have been quite a few removals that 
are hidden.
    Mr. Wu. Thank you.
    Mr. Mitchell. Thank you.
    Mr. Hall.
    Mr. Hall. Thank you, Mr. Chairman.
    Ms. Bonosaro, thank you for your testimony, and I 
appreciate your comments that SES members are working 70-hour 
weeks and are committed to the jobs that they do and are not in 
this for the money as it were.
    Chairman Mitchell, you talked about being a teacher. I was 
a school board trustee and President where we got paid no money 
and for 4 years, I put in a lot more hours than my wife would 
have liked me to.
    And indeed many of us here in Congress are not here for the 
money either. So I would like to think that that is sort of a 
common theme that perhaps a lot of us could do better in the 
private sector.
    But our job in Congress is to try to, if there is a problem 
that we can assist with legislation or providing more funding 
that we know that and that we do that.
    You have not been to some of the hearings that we have been 
at where we have heard people talk about the areas where the 
Department of Veterans Affairs is not at its best. There are 
many areas certainly where it does a very good job.
    There is a portability that is the envy of the rest of the 
healthcare system in terms of being able to bring your card to 
any hospital and have your record called up so that it does not 
matter if you are on vacation or traveling to visit somewhere 
else in the country and you have a health problem that you can 
start by being taken care of by somebody who knows exactly what 
your history is. And that is not true for many of the rest of 
us in the public healthcare or HMO world.
    But there are some disconnects. Now, those are the things 
that we are trying to figure out. For instance, if a Deputy 
Under Secretary of Health takes his position in February of 
2006 and in September 2006 gets a $33,000 bonus which is the 
largest bonus awarded that year to any official in the 
Department--you know, I did not get to ask this question before 
because the first answer took 5 minutes to my first question, 
but I will submit it in writing--but one has to wonder, you 
know, what this individual did in 6 months to merit the largest 
bonus given out in the Department.
    When the Deputy Under Secretary for Benefits requested an 
amount that apparently was less than what was needed to deal 
with the claims process, which the Secretary admits or himself 
describes as unacceptable, then he has described his apparently 
being exceptional in performance in terms of the recommendation 
for his bonus.
    We would give more money if we are asked for it. You know 
what I mean? If members, if officers or Secretary Deputies, 
Under Secretaries of the VA come to us and say, help, we need 
more funding, we need more people, we are not going to hold 
back on that.
    But we have had literally, I think, eight or so different 
proposals kicked around in the Committee and in the 
Subcommittees to try to bring the backlog down and to try to 
shorten the time of the appeals process and so on.
    And the answers that we have gotten back in the roundtable 
that the Chairman of the full Committee, Bob Filner, 
Congressman Filner, had a couple weeks ago, it seems that what 
I am hearing, if I heard right, was sort of like, well, we are 
close to it and we just need to work on this a little more and 
let the system work a little more.
    And so it is frustrating because we go home and we hear the 
complaints. I understand there are many more success stories 
possibly than there are complaints, but nonetheless, at a time 
when the system is taxed and overloaded and stressed, we need 
to either be told what solutions we can provide or else we are 
left to look and wonder if there is more oversight needed. And 
that is why we are here.
    So that was not exactly a question, but you can respond in 
any way you choose.
    Ms. Bonosaro. Thank you.
    Well, along the way, you talked about budget and I just 
want to point out that budget requests are not made directly to 
Congress by career executives, as you know. I mean, they are 
vetted, approved by not only the Secretary of the Department 
but OMB.
    And so whether or not a career executive happens to agree 
with particular budgetary requests, policy, or anything else, 
ultimately that conversation is had inside the Department. As 
you know, when they get here, they are going to defend what 
they are supposed to defend. They work at the direction of 
political appointees. So, you know, I trust you appreciate that 
and understand that.
    The other point I guess I would like to make is that I 
think it is very difficult to look at individual bonus awards 
without literally being in the Department, if you will, and 
having a greater sense of the day-to-day workings, the week-to-
week workings, and the contributions these people have made.
    I mean, I guess we would feel a lot more comfortable if you 
were addressing directly the points that you have been talking 
about, the claims processing as opposed to going in frankly via 
the bonus route because I suspect that you could probably 
conduct the same sort of consideration of other departments' 
programs and results, other Committees could in the same way by 
going via the bonus system. And I guess we think you ought to 
go in the other direction, frankly.
    Mr. Hall. Thank you, Mr. Chairman.
    Mr. Mitchell. Thank you.
    One last question. You just said, and I understand that, 
that these people work under political appointees and so they 
follow the directions of the political appointees.
    Would you then follow that their bonuses would be based on 
political considerations?
    Ms. Bonosaro. No. What I am saying is they have given their 
best advice. They have done their best work. But when a policy 
decision is made, it is theirs to carry out and to defend it. I 
do not think that means that their bonuses are made based on 
political considerations.
    Mr. Mitchell. Well, I only say that because the budget 
requests that were made by the VA to the Congress were 
understated and the VA knew they were understated, but they did 
it because they were hired or their bosses were political 
appointees. And these very people got the very highest bonus 
they could get and I assume they were doing their job.
    Now, they were doing their job either following the orders 
of the political appointees which seems to be the case, so----
    Ms. Bonosaro. Yes. I would conclude that certainly because 
their other alternative might have been to come here and 
suggest something entirely different to you, at which point 
they would no longer have a job.
    Mr. Mitchell. Thank you. Thank you.
    I want to thank everybody who was here and ask unanimous 
consent that all Members have five legislative days to submit 
or revise any of their extended remarks. If there is no 
objection, so ordered.
    And this concludes our hearing. Thank you.
    [Whereupon, at 4:40 p.m., the Subcommittee was adjourned.]
































                            A P P E N D I X

                              ----------                              

              Prepared Statement of Hon. Harry E. Mitchell
         Chairman, Subcommittee on Oversight and Investigations
    This hearing will come to order.
    Thank you all for coming today. I am pleased that so many folks 
could attend this oversight hearing on ``The Process of Awarding SES 
Bonuses at the Department of Veterans Affairs.''
    I know that the VA is full of hardworking, dedicated, and talented 
people. Nevertheless, there are reasons to be concerned that the VA 
bonus process is not doing what it should--matching pay to individual 
and organizational performance. Consider the following: The VA pays the 
highest average bonuses among all cabinet agencies. In 2006, 87 percent 
of Senior Executive Service employees who were considered for bonuses 
received one. Central office bonuses averaged $4,000 more than field 
bonuses. Particularly in the central office, there appears to be a case 
of exaggerated Lake Woebegone syndrome--not only is everyone above 
average, almost everyone is outstanding. The VA does indeed do an 
outstanding job in many areas, but not in all, and we hope that this 
oversight hearing will assist the VA in making sure that its bonuses 
more closely match its performance.
    Performance is not just individual, it is also organizational. The 
bonus system must allocate responsibility where it lies. When the 
backlog of claims has been increasing for the past few years, one would 
not expect the senior-most officials of the Veterans Benefit 
Administration to receive the maximum bonus. When the VA is forced to 
return to Congress for additional money--which happened twice in 2006--
because the budget submitted to Congress was inadequate and the VA 
failed to keep Congress informed, one would not expect the senior-most 
officials of VA responsible for the budget to receive the maximum 
bonus. This is not a question of blame; it is a question of 
responsibility. We can be certain that if the senior leaders of VBA 
know in advance that their bonuses will depend, at least in part, on 
reduction of the backlog of claims, those leaders will bring all of 
their creative energy to bear on the problem.
    The Subcommittee is also concerned about performance measures for 
central office employees. VA appears to be doing a commendable job in 
identifying objective, quantifiable criteria for evaluating its field 
personnel. The same is not true for the central office. It appears that 
central office personnel are evaluated on the basis of justifications 
written by the employees themselves, with no objective criteria 
factoring into the process. For example, the extent of the backlog of 
claims at VBA would seem to be one of the most important metrics of 
performance, but this Subcommittee has seen nothing in the materials 
provided by the VA that this metric was even considered by the 
Secretary in deciding the bonuses for senior leaders of VBA. Indeed, it 
appears that bonuses in the central office are awarded primarily on the 
basis of seniority and proximity to the Secretary.
    We are also concerned about what appears to be a breakdown in the 
review process. VA is subject to oversight by the VA Inspector General 
and by the Office of Medical Investigations. The Committee has found 
several examples of bonuses being awarded to employees responsible for 
VA operations that have been the subject of highly critical IG or OMI 
reports in the same year the bonus was awarded. VA must ensure that the 
Secretary and the Personnel Review Boards are aware of, and consider, 
such reports when making bonus decisions.
    Finally, I would note that Secretary Nicholson is responsible by 
law for the ultimate determination of who gets bonuses and in what 
amounts. The Committee invited Secretary Nicholson to attend today's 
hearing, but the VA has chosen to send his deputy, Mr. Mansfield, even 
though Mr. Mansfield appears to have had no role in the bonus process. 
The Committee would be pleased to hear from Mr. Mansfield that this is 
incorrect. In addition, it appears that Secretary Nicholson has served 
as a rubber stamp for the recommendations made by his subordinates, in 
sharp contrast to his predecessor. The Committee assumes that Mr. 
Mansfield will be able to address this issue as well.
    In closing, I want to reiterate that this Committee has no desire 
to denigrate the good work of the senior managers of VA. This hearing 
is not intended to pressure the VA into eliminating bonuses or to 
target individual VA employees. The VA, this Committee, and all 
Americans want what is best for our veterans. The SES bonus system can 
be an effective tool to improve the performance of the VA, and 
Congressional oversight of that process will assist the VA in better 
matching performance to reward.
    I look forward to today's testimony.

                                 
         Prepared Statement of Hon. Ginny Brown-Waite, Ranking
    Republican Member, Subcommittee on Oversight and Investigations
    Mr. Chairman, thank you for yielding. I would also like to thank 
the witnesses before us for coming to this hearing. Your testimony is 
important to the oversight of this Committee in guaranteeing the 
process of assessing bonus reviews is fair, accurate, and appropriate.
    During our Subcommittee hearing on April 19th, discussing the care 
situation at the W.G. (Bill) Hefner VA Medical Center in Salisbury, 
North Carolina, I asked for a list of the people who were involved in 
the administration of care at the hospital, and the bonuses they 
received over the period of time, where there was obviously 
questionable quality of care rendered to veterans at that facility. The 
Federal Government should not be in the practice of providing bonuses 
to individuals who permit a failure in the system under their watch. I 
believe that government should be run like a business enterprise, where 
bonuses are used as an appropriate reward, but are limited to only the 
very best and most deserving employees, especially during a time of 
war.
    Several Members on both sides of the aisle have expressed 
frustration over the bonus situation, particularly after the many news 
articles describing who received certain bonuses, and speculation as to 
whether these bonuses were justly and appropriately applied through the 
SES bonus process. The news media has linked bonuses to the 2005 budget 
shortfall issue, one that is very fresh on the minds of those of us 
here who served on the Committee during the 109th Congress. The media 
and several Members have also linked the bonuses to the claims backlog 
that is prevalent at the VA. I am concerned that we not be too quick to 
judge the evaluation process, but give all the witnesses here a fair 
process to express their views.
    It is my hope that, through the process of this hearing, we will 
learn more about how the VA determines the bonus awards given out, and 
whether the bonuses to members of the Senior Executive Service at the 
VA were given in an appropriate amount related to their actual 
performance. I also look forward to hearing from GAO to better 
understand how OPM certifies VA's bonus process and perhaps a better 
insight on VA's bonus justification process. I am sure many of the 
bonuses reflect the hard work and professionalism of VA's senior 
management.
    Again, thank you for yielding, Mr. Chairman, and I yield back my 
time.

                                 
      Prepared Statement of J. Christopher Mihm, Managing Director
        Strategic Issues, U.S. Government Accountability Office
    Mr. Chairman and Members of the Subcommittee:
    I am pleased to be here today to provide the Subcommittee with 
information on the Department of Veterans Affairs' (VA) process for 
providing Senior Executive Service (SES) performance awards 
(bonuses).\1\ VA's mission is to serve America's veterans and their 
families. Through its three primary components, in fiscal year 2006, VA 
operated one of the largest healthcare systems that provided services 
to about 5 million patients, paid cash disability benefits to more than 
3.5 million veterans and their survivors, and operated 125 national 
cemeteries in the United States.\2\
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    \1\ For purposes of this testimony, we refer to SES performance 
awards as bonuses. Since only members of the SES with career 
appointments are eligible for bonuses, all references to bonuses apply 
only to SES members with career appointments.
    \2\ VA's three primary components are the Veterans Health 
Administration, the Veterans Benefits Administration, and the National 
Cemetery Administration.
---------------------------------------------------------------------------
    In our body of work on Senior Executive performance management, we 
have discussed how high-performing organizations understand that they 
need senior leaders who are accountable for results, drive continuous 
improvement, and stimulate and support efforts to integrate human 
capital approaches with organizational goals and related transformation 
issues. We have also identified key practices of effective performance 
management for the SES, which include the linkage or ``line of sight'' 
between individual performance and organizational success, the 
importance of linking pay to individual and organizational performance, 
and the need to make meaningful distinctions in performance.\3\ In 
2006, we identified certain principles for executive pay plans that 
should be considered to attract and retain the quality and quantity of 
executive leadership necessary to address 21st century challenges, 
including that they be sensitive to hiring and retention trends; 
reflect responsibilities, knowledge, skills, and contributions; and be 
competitive.\4\
---------------------------------------------------------------------------
    \3\ GAO, Results-Oriented Cultures: Creating a Clear Linkage 
between Individual Performance and Organizational Success, GAO-03-488 
(Washington, D.C.: Mar. 14, 2003).
    \4\ GAO, Human Capital: Trends in Executive and Judicial Pay, GAO-
06-708 (Washington, D.C.: June 21, 2006).
---------------------------------------------------------------------------
    My comments today will focus on (1) VA's policies, procedures, and 
guidelines for evaluating and awarding SES member bonuses, including 
the composition and responsibility of VA's Performance Review Boards 
(PRB), which recommend SES bonuses; (2) the number and amount of 
bonuses awarded for fiscal years 2004 through 2006 by VA headquarters 
and field locations and compared to the amount of bonuses given to SES 
members at other major cabinet-level departments; and (3) the Office of 
Personnel Management's (OPM) and the Office of Management and Budget's 
(OMB) roles in certifying VA's and other agencies' SES performance 
appraisal system. We analyzed VA's policies and procedures related to 
the awarding of SES member bonuses for 2005 through 2007 that were 
included in VA's 2005 and 2006 submissions and 2007 draft submission to 
OPM concerning VA's SES and senior-level employee performance appraisal 
system. We also interviewed knowledgeable officials in VA's Office of 
Human Resources and Administration. We analyzed data provided to us by 
VA on the amount and number of SES member bonuses for fiscal years 2004 
through 2006 and comparable data from other cabinet-level departments 
as reported by OPM for fiscal years 2004 and 2005. The numbers we are 
presenting today are limited to SES member bonuses and do not include 
other types of SES member compensation. Information on OPM's and OMB's 
roles is based on our review of VA's senior performance appraisal 
system certification submissions and related correspondence and our 
prior work reviewing OPM's capacity to lead and implement reform.\5\ We 
conducted our work in May and June 2007 in accordance with generally 
accepted government auditing standards.
---------------------------------------------------------------------------
    \5\ GAO, Office of Personnel Management: Key Lessons Learned to 
Date for Strengthening Capacity to Lead and Implement Human Capital 
Reforms, GAO-07-90 (Washington, D.C.: Jan. 19, 2007).
---------------------------------------------------------------------------
    In summary, VA requires that each SES member have an executive 
performance plan or contract in place for the appraisal year that 
reflects measures that balance organization results with customer 
satisfaction, employee perspectives, and other appropriate measures. VA 
uses four PRBs that review and make recommendations on SES members' 
ratings, awards, and pay adjustments based on these performance plans. 
Members are appointed to the boards on the basis of the positions held, 
and consideration is given to those positions where the holder would 
have knowledge about the broadest group of executives. VA's PRBs vary 
in size, composition, and the number of SES members considered for 
bonuses, and each PRB, within the scope of VA's policies, develops its 
own procedures and criteria for making recommendations. According to VA 
policy, bonuses are generally awarded only to those rated outstanding 
or excellent and who have demonstrated significant individual and 
organizational achievements during the appraisal period. In fiscal year 
2006, VA awarded an average of $16,606 in bonuses to 87 percent of its 
career SES members.\6\ At headquarters, 82 percent of career SES 
members received bonuses and 90 percent received bonuses in the field. 
Additionally, those in headquarters were awarded an average of about 
$4,000 more in bonuses than the career SES members in its field 
locations. OPM and OMB evaluate agencies' SES and senior-level employee 
performance appraisal systems against nine certification criteria 
jointly developed by the two agencies. OPM also issues guidance to help 
agencies improve their systems and reviews submissions to ensure that 
they meet the criteria. In providing concurrence, OMB primarily 
considers measures of overall agency performance, such as agency 
President's Management Agenda results. Our review of VA's requirements 
for SES performance plans as represented in both its 2006 submission 
and 2007 draft submission to OPM shows that VA made changes to the 
requirements for its performance plans to reflect greater emphasis on 
measurable results.
---------------------------------------------------------------------------
    \6\ According to VA policy, Presidential Rank Award winners are not 
eligible for VA's Senior Executive bonuses in the same year they 
receive the award. Agencies can nominate Senior Executives for these 
awards, which recognize career Senior Executives who have demonstrated 
exceptional performance over an extended period of time. The OPM 
Director reviews agency nominations and recommends candidates to the 
President. These awards are either 20 or 35 percent of the recipient's 
base pay.
---------------------------------------------------------------------------
    We provided VA officials the opportunity to review the information 
contained in my statement. VA officials agreed that the facts presented 
accurately reflect VA's SES bonus process and results.
Background
    In recent years, Congress has passed legislation designed to 
strengthen the linkage between SES performance and pay. Congress 
established a new performance-based pay system for the SES and 
permitted agencies with SES appraisal systems, which have been 
certified as making meaningful distinctions based on relative 
performance, to apply a higher maximum SES pay rate and a higher annual 
cap on total SES compensation.\7\ We have testified that such SES and 
senior-level employee performance-based pay systems serve as an 
important step for agencies in creating alignment or ``line of sight'' 
between executives' performance and organizational results.\8\ By 2004, 
an agency could apply a higher cap on SES pay and total compensation if 
OPM certifies and OMB concurs that the agency's performance management 
system, as designed and applied, aligns individual performance 
expectations with the mission and goals of the organization and makes 
meaningful distinctions in performance. Since 2004, VA has received 
approval to increase the cap on SES pay and total compensation, which 
includes bonuses.
---------------------------------------------------------------------------
    \7\ See section 1322 of the Chief Human Capital Officers Act of 
2002, Title XIII of the Homeland Security Act of 2002, Pub. L. No. 107-
296 (Nov. 25, 2002) and section 1125(a)(2) of the National Defense 
Authorization Act for Fiscal Year 2004, Pub. L. No. 108-136 (Nov. 24, 
2003).
    \8\ GAO, Human Capital: Aligning Senior Executives' Performance 
with Organizational Results Is an Important Step Toward Governmentwide 
Transformation, GAO-06-1125T (Washington, D.C.: Sept. 26, 2006).
---------------------------------------------------------------------------
    By law, only career SES appointees are eligible for SES bonuses.\9\ 
As stated previously, agencies with certified senior performance 
appraisal systems are permitted higher caps on SES base pay and total 
compensation. With a certified system, for 2006, an agency was 
authorized to increase SES base pay to $165,200 (Level II of the 
Executive Schedule) and total compensation to $212,100 (the total 
annual compensation payable to the Vice President). Those agencies 
without certified systems for 2006 were limited to a cap of $152,000 
for base pay (Level III of the Executive Schedule) and $183,500 (Level 
I of the Executive Schedule) for total compensation.\10\ SES 
performance bonuses are included in SES aggregate total compensation. 
Agencies are permitted to award bonuses from 5 to 20 percent of an 
executive's rate of basic pay from a pool that cannot exceed the 
greater of 10 percent of the aggregate rate of basic pay for the 
agency's career SES appointees for the year preceding, or 20 percent of 
the average annual rates of basic pay to career SES members for the 
year preceding.
---------------------------------------------------------------------------
    \9\ 5 U.S.C. Sec. 5384.
    \10\ In 2007, Senior Executives at agencies with certified systems 
can receive up to $168,000 in base pay and $215,700 in total 
compensation, at agencies with noncertified systems, up to $154,600 in 
base pay and $186,600 in total compensation.
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VA's SES Performance Appraisal Process
    VA requires that each SES member have an executive performance plan 
or contract in place for the appraisal year. According to VA's policy, 
the plan must reflect measures that balance organizational results with 
customer satisfaction, employee perspectives, and other appropriate 
measures. The plan is to be based on the duties and responsibilities 
established for the position and also reflect responsibility for 
accomplishment of agency goals and objectives, specifying the 
individual and organizational performance or results to be achieved for 
each element. Toward the end of the appraisal period, each executive is 
to prepare a self-assessment relative to the job requirements in the 
approved performance plan, and his or her supervisor then rates the 
executive on each element and provides a summary rating. Specifically, 
according to VA's policy on the rating process, the rater is to assess 
the accomplishment of each established performance requirement, 
consider the impact of the individual requirement on overall 
performance of the element, and assign one achievement level for each 
element. The VA rating is a written record of the appraisal of each 
critical and other performance element and the assignment of a summary 
rating level by the rater. The summary of each SES member rating passes 
to the appropriate reviewing official (if applicable) and PRBs for 
consideration.
    VA uses four PRBs to review and prepare recommendations on SES 
member ratings, awards, and pay adjustments: Veterans Affairs, Veterans 
Health Administration, Veterans Benefits Administration, and Office of 
Inspector General. The Veterans Affairs PRB has a dual role in VA in 
that it functions as a PRB for SES members who work for VA's central 
offices, such as the Office of the Assistant Secretary for Management 
and the Office of the Assistant Secretary for Policy and Planning, and 
those employed by the National Cemetery Administration. It also reviews 
the policies, procedures, and recommendations from the Veterans Health 
Administration and Veterans Benefits Administration PRBs.
    The Secretary appoints members of three of the four PRBs on an 
annual basis; members of the Office of Inspector General PRB are 
appointed by the VA Inspector General. VA's PRBs must have three or 
more members appointed by the agency head or Inspector General for the 
Office of Inspector General PRB and can include all types of Federal 
executives from within and outside the agency. As required by OPM, when 
appraising career appointees or recommending performance awards for 
career appointees, more than one-half of the PRB membership must be 
career SES appointees. Federal law prohibits PRB members from taking 
part in any PRB deliberations involving their own appraisals. 
Appointments to PRBs must also be published in the Federal 
Register.\11\ According to a VA official in the Office of Human 
Resources and Administration, appointments are made on the basis of the 
position held, and consideration is given to those positions where the 
holder would have knowledge about the broadest group of executives. 
Typically, the same VA positions are represented on the PRB each year, 
and there is no limit on the number of times a person can be appointed 
to a PRB.
---------------------------------------------------------------------------
    \11\ 5 U.S.C. Sec. 4314. VA's PRB members were published in the 
Federal Register on November 2, 2006. 71 Fed. Reg. 64,609 (Nov. 2, 
2006).
---------------------------------------------------------------------------
    VA's PRBs vary in size, composition, and number of SES members 
considered for bonuses. For example, in 2006, VA's Veterans Health 
Administration PRB was composed of 18 members and made recommendations 
on 139 SES members while its Veterans Benefits Administration PRB was 
composed of 7 members and made recommendations on 50 SES members. In 
2006, 6 PRB members sat on multiple PRBs, and 1 member, the Deputy 
Chief of Staff, sat on three PRBs--the Veterans Affairs, Veterans 
Health Administration, and Veterans Benefits Administration PRBs. With 
the exception of the Office of Inspector General PRB, members of PRBs 
are all departmental employees, a practice that is generally consistent 
across cabinet-level departments. The Office of Inspector General PRB 
is composed of 3 external members--officials from other Federal 
agencies' offices of inspector generals--which is generally consistent 
with PRBs for other Federal offices of inspector general.
    Under VA's policy, each PRB develops its own operating procedures 
for reviewing ratings and preparing recommendations. The Veterans 
Health Administration and Veterans Benefits Administration PRBs are to 
submit their procedures to the chairperson of the Veterans Affairs PRB 
for approval and are to include a summary of procedures used to ensure 
that PRB members do not participate in recommending performance ratings 
for themselves or their supervisors.
    VA policy requires any SES member who wishes to be considered for a 
bonus to submit a two-page justification based on his or her 
performance plan addressing how individual accomplishments contribute 
toward organizational and departmental goals, as well as appropriate 
equal employment opportunity and President's Management Agenda 
accomplishments. While Federal law and OPM regulations permit career 
SES members rated fully successful or higher to be awarded bonuses, 
VA's policy calls for bonuses to generally be awarded to only those 
rated outstanding or excellent and who have demonstrated significant 
individual and organizational achievements during the appraisal period. 
Beyond these policies, each PRB determines how it will make its 
recommendations. For example, a VA official from its Office of Human 
Resources and Administration told us that the Veterans Affairs PRB 
bases it's bonus recommendations on an array of the numerical scores 
assigned based on the executive core qualifications. The information 
that each PRB receives from its component units also varies. For 
example, the Veterans Benefits Administration PRB members receive 
ratings and recommended pay adjustments and bonus amounts from Veterans 
Benefits Administration units. VA policy requires formal minutes of all 
PRB meetings that are to be maintained for 5 years. The official from 
the Office of Human Resources and Administration told us that the 
minutes are limited to decisions made, such as the recommended bonus 
amount for each SES member considered, and generally do not capture the 
deliberative process leading to such decisions. Data provided by VA on 
one VA component--the Veterans Integrated Services Network--showed that 
of the bonuses proposed for fiscal year 2006, the Veterans Health 
Administration PRB decreased 45 and increased 9 of the bonuses 
initially proposed to that PRB and left the amounts of 64 unchanged.
    At the conclusion of their deliberations, the Veterans Health 
Administration and Veterans Benefits Administration PRBs send their 
recommendations to the Under Secretary for Health and Under Secretary 
for Benefits, respectively, who, at their sole discretion, may modify 
the recommendations for SES members under their authority. No 
documentation of the rationale for modifications is required. The 
recommendations, as modified, are then forwarded to the chairperson of 
the Veterans Affairs PRB, who reviews the decisions for apparent 
anomalies, such as awarding bonuses that exceed maximum amounts. The 
chairperson of the Veterans Affairs PRB then forwards the 
recommendations from the Veterans Health Administration, Veterans 
Benefits Administration, and Veterans Affairs PRBs to the Secretary for 
approval.
    The Secretary makes final determinations for SES member performance 
bonuses, with the exception of SES members in VA's Office of Inspector 
General. Recommendations from the Office of Inspector General PRB are 
sent directly to the VA Inspector General for final decision without 
review by the Veterans Affairs PRB or approval by the Secretary.\12\ 
The Secretary has sole discretion in accepting or rejecting the 
recommendations of the PRBs. According to an official in the Office of 
Human Resources and Administration, the Secretary modified 1 
recommendation in 2006, but a prior Secretary modified over 30 in 1 
year.
---------------------------------------------------------------------------
    \12\ In accordance with section 6(d) of the Inspector General Act 
of 1978, the VA Inspector General is responsible for making final bonus 
decisions for SES members within the Office of the Inspector General. 
See Pub. L. No. 95-452, codified at section 6(d) of Appendix 3 of Title 
5 of the United States Code.
---------------------------------------------------------------------------
    Recommendations for bonuses for members of the Veterans Affairs, 
Veterans Health Administration, and Veterans Benefits Administration 
PRBs are made after the PRBs conclude their work.\13\ The highest-level 
executives of each board rank the members of their respective PRBs and 
make recommendations, which are submitted to the Secretary. The 
Secretary determines any bonuses for the highest-level executives of 
the Boards.
---------------------------------------------------------------------------
    \13\ The three members of the Office of Inspector General PRB are 
not eligible for bonuses from VA because they are external to VA.
---------------------------------------------------------------------------
VA SES Bonuses
    In 2006, VA's bonus pool was $3,751,630, or 9 percent of the 
aggregate basic pay of its SES members in 2005. VA awarded an average 
of $16,606 in bonuses in fiscal year 2006 to 87 percent of its career 
SES members.\14\ At headquarters, approximately 82 percent of career 
SES members received bonuses and 90 percent received bonuses in the 
field. Additionally, those in headquarters were awarded an average of 
about $4,000 more in bonuses than the career SES members in field 
locations. Table 1 shows the average bonus amount, percentage receiving 
bonuses, and total rated at VA among career SES members and by 
headquarters and field locations for 2004 through 2006.\15\
---------------------------------------------------------------------------
    \14\ According to VA policy, Presidential Rank Award winners are 
not eligible for VA's Senior Executive bonuses in the same year. 
Agencies can nominate Senior Executives for these awards, which 
recognize career Senior Executives who have demonstrated exceptional 
performance over an extended period of time. The OPM Director reviews 
agency nominations and recommends candidates to the President. These 
awards are either 20 or 35 percent of the recipient's base pay.
    \15\ For 2004 and 2005, our analysis of the average award amount 
and percentage receiving SES bonuses at VA based on data provided by VA 
differs from that reported by OPM.

  Table 1. Average Bonus Amount, Percentage Receiving Bonuses, and Total Rated at VA among Career SES Members and by Headquarters and Field Locations,
                                                                        2004-2006
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            2004                          2005                          2006
                                                               -----------------------------------------------------------------------------------------
                                                                 Average  Percentage  Number   Average  Percentage  Number   Average  Percentage  Number
                                                                 amount    receiving   rated   amount    receiving   rated   amount    receiving   rated
--------------------------------------------------------------------------------------------------------------------------------------------------------
All                                                             $16,371        85.4     240   $16,713        79.7     261   $16,606        87.2     243
--------------------------------------------------------------------------------------------------------------------------------------------------------
Headquarters                                                     19,195        82.1      78    18,629        80.2      86    19,439        81.9      83
--------------------------------------------------------------------------------------------------------------------------------------------------------
Field                                                            15,089        87.0     162    15,761        79.4     175    15,268        90.0     160
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: GAO analysis of VA data.
Note: We excluded career SES members who received Presidential Rank Awards from our calculations of average bonus amount, percent receiving bonuses and
  total rated because under VA's policy, those individuals were not considered for bonuses.

    In 2005, according to OPM's Report on Senior Executive Pay for 
Performance for Fiscal Year 2005, the most recent report available, VA 
awarded higher average bonuses to its career SES than any other 
cabinet-level department. OPM data show that six other cabinet-level 
departments awarded bonuses to a higher percentage of their career SES 
members.\16\ When asked about possible reasons for VA's high average 
bonus award, a VA official in the Office of Human Resources and 
Administration cited the outstanding performance of VA's three 
organizations and the amount allocated to SES member bonuses.
---------------------------------------------------------------------------
    \16\ In fiscal years 2004 and 2005, the Department of Defense did 
not receive certification of its SES performance appraisal system for 
SES members.
---------------------------------------------------------------------------
OPM's and OMB's Roles in the VA Certification Process
    Both OPM and OMB play a role in the review of agency's senior 
performance appraisal systems and have jointly developed certification 
criteria.\17\ OPM issues guidance each year to help agencies improve 
the development of their SES performance appraisal systems and also 
reviews agency certification submissions to ensure they meet specified 
criteria. To make its own determination, OMB examines agency's 
performance appraisal systems against the certification criteria, 
primarily considering measures of overall agency performance, such as 
an agency's results of a Program Assessment Rating Tool review or 
President's Management Agenda results.
---------------------------------------------------------------------------
    \17\ GAO-07-90.
---------------------------------------------------------------------------
    Specifically, to qualify for the use of SES pay flexibilities, OPM 
and OMB evaluate agencies' senior performance appraisal systems against 
nine certification criteria. These certification criteria are broad 
principles that position agencies to use their pay systems 
strategically to support the development of a stronger performance 
culture and the attainment of the agencies' missions, goals, and 
objectives. These are alignment, consultation, results, balance, 
assessments and guidelines, oversight, accountability, performance, and 
pay differentiation. See Appendix I for a description of the 
certification criteria. There are two levels of performance appraisal 
system certification available to agencies: full and provisional. To 
receive full certification, the design of the systems must meet the 
nine certification criteria, and agencies must, in the judgment of OPM 
and with concurrence from OMB, provide documentation of prior 
performance ratings to demonstrate compliance with the criteria. Full 
certification lasts for 2 calendar years. Provisionally certified 
agencies are also granted the authority to apply higher caps on SES pay 
and total compensation just as those with fully certified systems are, 
even though agencies with provisional certification do not meet all 
nine of the certification criteria. Provisional certification lasts for 
1 calendar year. According to OPM, the regulations were designed to 
cover initial implementation of the certification process. Now that all 
agencies have been under the system, all nine criteria must be met for 
an agency to be certified, even provisionally. According to OPM, for an 
agency to receive full certification in 2007, it must show that it has 
2 years of making performance differentiation in ratings, pay, and 
award; and that the agency performance plans fully met all the criteria 
without requiring extensive revision.
    After OMB concurrence, the Director of OPM certifies the agency's 
performance appraisal system and formally notifies the agency with a 
letter specifying provisional, full certification, or no 
certification.\18\ Of the 42 performance appraisal systems that were 
certified in 2006, only the Department of Labor's system received full 
certification. According to OPM's Web site, as of June 5, 2007, four 
agencies had received full certification of their senior performance 
appraisal systems--the Department of Commerce for 2007 through 2008, 
the Department of Labor for 2006 through 2007, the Federal 
Communications Commission for 2007 through 2008, and the Federal Energy 
Regulatory Commission for 2007 through 2008.\19\
---------------------------------------------------------------------------
    \18\ Since congressional authorization for the new performance-
based pay system went into effect, not all Federal agencies have 
submitted their senior performance appraisal systems for review and not 
all agencies have received either full or provisional certification.
    \19\ All years are calendar years.
---------------------------------------------------------------------------
    If provisional or no certification is recommended, the letter from 
OPM provides the agency with specific areas of concern identified 
through the review process. These comments may direct an agency to 
focus more on making meaningful distinctions in performance or 
improving the type of performance measures used to evaluate SES 
members. For example, in OPM's 2007 certification guidance, the OPM 
Director asked agencies to place more emphasis on achieving measurable 
results, noting that many plans often fall short of identifying the 
measures used to determine whether results are achieved. In addition, 
OPM asked agencies to highlight in their 2007 certification requests 
any description or evidence of improvements made as a result of 
comments from OPM or OMB in response to the agency's 2006 certification 
submission.
    VA received provisional certification for each of the years 2004 
through 2006. In 2006, in the letter from OPM to VA discussing its 
decision to grant the VA provisional certification rather than full 
certification, OPM stated that while the VA ``system met certification 
criteria, clear alignment and measurable results must be evident in all 
plans across the entire agency.'' In addition, OPM said that it 
expected to see ``well over 50 percent of an executive's performance 
plan focused on business results'' and that VA ``needs to ensure its 
2007 executive performance plans weight business results 
appropriately.'' VA officials told us that the 2007 submission is in 
draft and they expect to submit it to OPM by the June 30, 2007, 
deadline.
    Our preliminary review of VA's requirements for performance plans 
contained in its 2006 submission and 2007 draft submission show that VA 
made changes to the policy requirements for its performance plans to 
reflect a greater emphasis on measurable results. Specifically, the 
elements of the job requirement in the 2007 policies provides that each 
critical element and performance element will be weighted, which was 
not previously required in 2006. These performance requirements, 
according to the policy, will be described in terms of specific 
result(s) with metrics that the SES member must accomplish for the 
agency to achieve its annual performance goals and represent at least 
60 percent of the overall weight of the performance plan. The policy 
further states that the expected results should be specific, 
measurable, and aggressive yet achievable, results-oriented, and time-
based.
    Responding to concerns expressed by Members of Congress and media 
reports about SES member bonuses, VA's Secretary recently requested 
that OPM review its performance management program for Senior 
Executives to ensure that its processes are consistent with governing 
statutes and OPM regulations and guidance. VA officials indicated that 
while OPM's review encompasses some of the same areas as those required 
for 2007 certification, VA requested a separate report from OPM.
    We have stated that it is important for OPM to continue to 
carefully monitor the implementation of agencies' systems and the 
certification process with the goal of helping all agencies to receive 
full certification of their system. Requiring agencies with provisional 
certification to reapply annually rather than every 2 years helps to 
ensure continued progress in fully meeting congressional intent in 
authorizing the new performance-based pay system. VA has achieved 
provisional certification of its SES performance management system for 
2004 through 2006.
    Mr. Chairman and Members of the Subcommittee, this concludes my 
prepared statement. I would be pleased to respond to any questions that 
you have.
Contacts and Acknowledgments
    For further information regarding this statement, please contact J. 
Christopher Mihm at (202) 512-6806 or mihmj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this testimony. Individuals making key 
contributions to this statement included George Stalcup, Director; 
Belva Martin, Assistant Director; Carole J. Cimitile; Karin Fangman; 
Tamara F. Stenzel; and Greg Wilmoth.

  Appendix I:  Senior Executive Service Performance Appraisal System 
                         Certification Criteria

                    Summary of Certification Criteria for Senior Executive Appraisal Systems
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Alignment                                              Individual performance expectations must be linked to or
                                                   derived from the agency's mission, strategic goals, program/
                                                             policy objectives, and/or annual performance plan.
----------------------------------------------------------------------------------------------------------------
Consultation                                       Individual performance expectations are developed with senior
                                                           employee involvement and must be communicated at the
                                                                              beginning of the appraisal cycle.
----------------------------------------------------------------------------------------------------------------
Results                                                    Individual expectations describe performance that is
                                                           measurable, demonstrable, or observable, focusing on
                                                            organizational outputs and outcomes, policy/program
                                                                          objectives, milestones, and so forth.
----------------------------------------------------------------------------------------------------------------
Balance                                            Individual performance expectations must include measures of
                                                   results, employee and customer/stakeholder satisfaction, and
                                                       competencies or behaviors that contribute to outstanding
                                                                                                   performance.
----------------------------------------------------------------------------------------------------------------


               Summary of Certification Criteria for Senior Executive Appraisal Systems_Continued
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Assessments                                           The agency head or a designee provides assessments of the
  and guidelines                                      performance of the agency overall, as well as each of its
                                                         major program and functional areas, such as reports of
                                                      agency's goals and other program performance measures and
                                                     indicators, and evaluation guidelines based, in part, upon
                                                   those assessments to senior employees, and appropriate senior
                                                          employee rating and reviewing officials. The guidance
                                                   provided may not take the form of quantitative limitations on
                                                               the number of ratings at any given rating level.
----------------------------------------------------------------------------------------------------------------
Oversight                                                 The agency head or designee must certify that (1) the
                                                       appraisal process makes meaningful distinctions based on
                                                        relative performance; (2) results take into account, as
                                                             appropriate, the agency's performance; and (3) pay
                                                     adjustments and awards recognize individual/organizational
                                                                                                   performance.
----------------------------------------------------------------------------------------------------------------
Accountability                                       Senior employee ratings (as well as subordinate employees'
                                                            performance expectations and ratings for those with
                                                   supervisor responsibilities) appropriately reflect employees'
                                                         performance expectations, relevant program performance
                                                                          measures, and other relevant factors.
----------------------------------------------------------------------------------------------------------------
Performance dif-                                   Among other provisions, the agency must provide for at least
  ferentiation                                         one rating level above Fully Successful (must include an
                                                   Outstanding level of performance), and in the application of
                                                   those ratings, make meaningful distinctions among executives
                                                                           based on their relative performance.
----------------------------------------------------------------------------------------------------------------
Pay differentia-                                   The agency should be able to demonstrate that the largest pay
  tion                                                    adjustments, highest pay levels (base and performance
                                                   awards), or both are provided to its highest performers, and
                                                   that, overall, the distribution of pay rates in the SES rate
                                                     range and pay adjustments reflects meaningful distinctions
                                                          among executives based on their relative performance.
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of OPM and OMB regulations.


                               __________
                             GAO HIGHLIGHTS
                             HUMAN CAPITAL
   Bonuses to Senior Executives at the Department of Veterans Affairs
Highlights of GAO-07-985T, testimony before Subcommittee on Oversight 
and Investigations, Committee on Veterans' Affairs, House of 
Representatives.
Why GAO Did This Study
    Key practices of effective performance management for the Senior 
Executive Service (SES) include the linkage or ``line of sight'' 
between individual performance and organizational success, the 
importance of linking pay to individual and organizational performance, 
and the need to make meaningful distinctions in performance. GAO 
identified certain principles for executive pay plans that should be 
considered to attract and retain the quality and quantity of executive 
leadership necessary to address 21st century challenges, including that 
they be sensitive to hiring and retention trends; reflect knowledge, 
skills, and contributions; and be competitive. This testimony focuses 
on the Department of Veterans Affairs (VA) process for awarding bonuses 
to SES members, the amount and percentage of bonuses awarded for fiscal 
years 2004 through 2006 based on data reported by VA, and the Office of 
Personnel Management's (OPM) and the Office of Management and Budget's 
(OMB) roles in certifying Federal agencies SES performance appraisal 
systems.
    GAO analyzed VA's policies and procedures for awarding bonuses and 
data provided by VA on the amount and percentages of bonuses and 
interviewed knowledgeable VA officials. Information on OPM's and OMB's 
certification process was based on our 2007 report on OPM's capacity to 
lead and implement reform.
    www.gao.gov/cgi-bin/getrpt?GAO-07-985T.
    To view the full product, including the scope and methodology, 
click on the link above. For more information, contact J. Christopher 
Mihm at (202) 512-6806 or mihmj@gao.gov.
What GAO Found
    VA requires that each Senior Executive have an executive 
performance plan or contract in place for the appraisal year that 
reflects measures that balance organization results with customer 
satisfaction, employee perspectives, and other appropriate measures. VA 
uses four Performance Review Boards (PRB) to review and make 
recommendations on SES ratings, awards, and pay adjustments based on 
these performance plans. VA's Secretary appoints members of three of 
the four Boards on the basis of the position held within the agency, 
and consideration is given to those positions where the holder would 
have knowledge about the broadest group of executives. Members of the 
fourth Board are appointed by VA's Inspector General. VA's PRBs vary in 
size, composition, and number of SES members considered for bonuses, 
and each PRB, within the scope of VA's policies, develops its own 
procedures and criteria for making bonus recommendations. According to 
VA policy, bonuses are generally awarded only to those rated 
outstanding or excellent and who have demonstrated significant 
individual and organizational achievements during the appraisal period.
    As for bonuses awarded, the table below shows VA SES member bonus 
amounts for fiscal years 2004 through 2006.


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            2004                          2005                          2006
                                                               -----------------------------------------------------------------------------------------
                                                                 Average  Percentage  Number   Average  Percentage  Number   Average  Percentage  Number
                                                                 amount    receiving   rated   amount    receiving   rated   amount    receiving   rated
--------------------------------------------------------------------------------------------------------------------------------------------------------
All                                                             $16,371        85.4     240   $16,713        79.7     261   $16,606        87.2     243
--------------------------------------------------------------------------------------------------------------------------------------------------------
Headquarters                                                     19,195        82.1      78    18,629        80.2      86    19,439        81.9      83
--------------------------------------------------------------------------------------------------------------------------------------------------------
Field                                                            15,089        87.0     162    15,761        79.4     175    15,268        90.0     160
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: GAO analysis of VA data.


    According to data reported by OPM, in fiscal year 2005, VA awarded 
higher bonus amounts to its career SES than any other cabinet-level 
department; however, according to OPM's data, six other cabinet-level 
departments awarded bonuses to a higher percentage of their career SES.
    OPM and OMB evaluate agencies' SES performance appraisal systems 
against nine certification criteria jointly developed by the two 
agencies and determine that agencies merit full, provisional, or no 
certification. VA has been granted provisional certification in each of 
the years 2004 through 2006. Our review of VA's requirements for SES 
performance plans as represented in both its 2006 submission and 2007 
draft submission to OPM show that VA made changes to the requirements 
for its performance plans to reflect greater emphasis on measurable 
results.

                                 
             Prepared Statement of Hon. Gordon H. Mansfield
         Deputy Secretary, U.S. Department of Veterans Affairs
    Mr. Chairman and Members of the Committee:
    Recently, questions have surfaced about the integrity of the 
performance award process for Senior Executives serving within the 
Department of Veterans Affairs (VA).
    I am pleased to come before you to address this issue and to 
provide an overview of the performance management system governing VA's 
career Senior Executive Service (SES) corps. But most important, I am 
happy to dispel any and all misrepresentations surrounding the issues 
of SES performance ratings, pay increases, and performance bonuses 
within my Department.
    I would like to note that, by statute, Senior Executive noncareer 
appointees are not eligible for performance bonuses.
    Federal law and Office of Personnel Management (OPM) policies guide 
the executive branch in matters relating to compensation of Federal 
employees. Those policies acknowledge that performance awards are 
integral to the government's ability to attract, retain, and reward 
experienced, high-quality career executives.
    United States Code specifically states that ``to encourage 
excellence in performance by career appointees, performance awards 
shall be paid.'' (Title 5, sec. 5384, `Performance awards in the Senior 
Executive Service').
    It further specifies the way payment is to be made (``in a lump sum 
and in addition to basic pay''); The way a bonus pool is to be 
established (``an amount not to exceed 10 percent of the aggregate 
amount of basic pay paid''); And the parameters governing an award's 
payment amount (``a performance award . . . may not be less than 5 
percent nor more than 20 percent of the rate of basic pay'').
    The statute also establishes the procedure for appointing 
Performance Review Boards (PRBs), stipulating that the majority of 
members are to be career appointees. And, last, the statute assigns to 
the Secretary of Veterans Affairs final approval of awards recommended 
by each PRB for the Department.
    Office of Personnel Management regulations further amplify this 
statutory framework. OPM regulations set procedures for establishing 
PRBs and state the criteria for determining performance standards and 
related metrics. And OPM annually reviews and certifies the results of 
PRB activities to ensure compliance with its rules and regulations.
    In keeping with the statute, and adhering to OPM regulations, VA's 
four PRBs direct a rigorous and transparent performance management 
process. They establish performance standards that are objective, 
measurable and, to the maximum extent possible, quantifiable.
    Our executives report on their specific levels of achievement 
measured against these standards, and their supervisors subsequently 
recommend performance ratings, pay adjustments, and bonuses.
    Senior Executive Service personnel, by definition, hold leadership 
positions of great responsibility and trust. And VA approves bonuses 
for these men and women based on one and only one criteria--
demonstrated performance. Greater amounts are awarded to career 
executives who receive higher performance ratings for successfully 
carrying out complex responsibilities in positions with broad spans of 
control.
    These bonus recommendations are reviewed by the governing PRB to 
ensure equitable and consistent interpretation and application 
throughout the Department. The Board then forwards its recommendations, 
through me, to the Secretary for his final review and approval.
    VA has 321 career SES positions. This represents a ratio of Senior 
Executives to the general employee population of approximately 750:1. 
This ratio represents one of the broadest spans of control in the 
Federal Government. Our SES corps provides oversight to a staff of 
nearly 240,000 employees and a budget of more than $87 billion.
    VA provides direct services, such as healthcare, pensions, 
compensation, home and education loans, and burials to millions of 
veterans annually.
    In point, we operate the Nation's largest integrated healthcare 
system, with 153 hospitals, 882 outpatient clinics, 46 domiciliary 
residences, and 207 Vet Centers. Fully 198,000 employees staff the 
broad-based programs and services of our Veterans Health 
Administration.
    VA manages a $34.5 billion healthcare system with 7.6 million 
enrollees. We treat 5.8 million patients, and have over 57 million 
outpatient visits annually. That's more than 1 million patients each 
and every week.
    VA has been widely acknowledged in the healthcare industry and by 
the media as the best healthcare system in America today. Business Week 
. . . the Washington Monthly . . . U.S. News and World Report . . . the 
New York Times . . . and NBC Nightly News, among many others, have all 
applauded our state-of-the-art medical care.
    Our $40 billion benefits system, supported by over 13,000 
employees, disburses disability payments each month to 2.7 million 
recipients, and pensions to more than 324,000 beneficiaries on our 
rolls. Payments made on time, every time.
    This year, we will pay out more than $2.7 billion in educational 
benefits to over one-half million active duty servicemembers, veterans, 
and their beneficiaries.
    Last year, VA helped over 142,000 veterans purchase homes worth $25 
billion through our home loan guaranty program.
    VA administers $1.3 trillion in insurance coverage for 4.3 million 
veterans and servicemembers, plus 3 million spouses and children.
    For calendar year 2006, our insurance programs paid claims totaling 
$2.1 billion to 110,000 veterans, servicemembers, and their families. 
This includes the newly-enacted Traumatic Servicemembers' Group Life 
Insurance program, which provides payments to seriously injured 
servicemembers and their families at a time when they are most in need 
of our support.
    If operating in the private sector, VA's insurance component, 
alone, would rank as the sixth largest life insurance company in the 
country.
    We operate the country's largest burial and cemetery system. This 
year, more than 103,000 veterans will be laid to rest in one of 125 
national cemeteries whose operations are supported by a staff of 1,527. 
Since 2005, we have established five new national cemeteries, and will 
open six more by late 2008 and early 2009.
    In the midst of our historic expansion, VA remains committed to 
ensuring that each of our cemeteries is maintained as a pristine, 
respectful National Shrine to those who served. This fiscal year, we 
will expend $16.6 million to support our commitment.
    Our cemetery operations have elicited customer satisfaction ratings 
that are second to none. Surveys have consistently confirmed that VA 
provides an unmatched level of excellence in honoring our Nation's 
departed heroes.
    VA's central office is the nexus for an array of programs and 
services that reach from Maine to Manila. Central office sets VA-wide 
policy and procedures, prepares the Department's budget, oversees 
financial operations, and manages our information technology 
infrastructure.
    Working for the second largest agency in the Federal Government, 
each VA Senior Executive has responsibility for far-reaching and 
complex programs, significant financial resources and major capital 
assets, and large numbers of reporting staff.
    Within VA, the bonus pool is 9 percent of aggregate SES salaries, 
or about $3.8 million. That is in the context of an overall 2006 VA 
salary budget of approximately $18.4 billion. This amount translates to 
.02% of 2006 salaries. Or expressed another way, for every $1 million 
in salaries, VA awarded just over $200 in bonuses.
    Over the past 3 years, the average SES bonus amount is in the range 
of $16,000. This compares to a governmentwide average of approximately 
$14,000. I would like to take this opportunity to note that a number of 
agencies report a mean SES bonus figure that falls well within the 
$2,000 window between the VA and governmentwide averages.
    For example, FY 2005 data show that the average SES bonus was 
$15,945 at the Department of Agriculture; $15,857 at NASA; and $15,173 
at the Treasury Department.
    In response to recent congressional inquiries about SES bonuses, 
Secretary Nicholson requested an OPM review of VA's SES performance-
based pay system. I am including the OPM report as an attachment and 
will briefly provide a summary of its findings.
    Number one. The design and implementation of VA's SES performance 
management system meets all statutory and regulatory requirements.
    Number two. Executives who are members of PRBs do not make 
recommendations regarding their own pay adjustments and awards, or the 
pay adjustments and awards of other executives in their chain of 
command.
    Number three. VA is making distinctions in performance as evidenced 
in its ratings, pay, and awards decisions.
    Number four. VA executives are rated and rewarded primarily based 
on organizational results balanced against customer and employee 
perspectives and additional executive competencies.
    Secretary Nicholson has agreed to fully implement the 
recommendations made as a result of the OPM analysis.
    Mr. Chairman, I am extremely proud of the Senior Executives with 
whom I work. They are a highly competent and committed group of leaders 
who excel in managing an organization that, if in the private sector, 
would rank as a Fortune 50 company.
    The scope of our services is enormous, and the implications for 
senior personnel management are equally great.
    Most of our SES have dedicated their entire careers to the welfare 
of America's veterans. Many are retirement eligible--and were they to 
retire--they would quickly be hired at considerably higher salaries by 
one of the many organizations with whom VA does business.
    While the bonus dollar amounts under discussion are sizeable, they 
are paid to seasoned and successful executives in recognition of solid 
and significant contributions to public service. And they pale in 
comparison with compensation and bonuses common to executives, with 
similar credentials, working in the private sector.
    Good government is a reflection of the people who make it that way, 
and their competency, dedication, and leadership are essential to the 
Department of Veterans Affairs, as they are to government-at-large.
    VA remains committed to the statutory imperative of executive 
bonuses to both reward and to encourage continued ``excellence in 
performance.''
    Mr. Chairman, this concludes my prepared remarks. I would be happy 
to answer any questions you may have.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                 
                Prepared Statement of Carol A. Bonosaro
                President, Senior Executives Association
    Distinguished Members of the Subcommittee:
    The Senior Executives Association, the professional association 
representing the interests of members of the career Senior Executive 
Service and those holding equivalent positions, appreciates the 
opportunity to testify about performance awards for Senior Executives 
at the Department of Veterans Affairs.
    This investigation into and resulting publicity surrounding bonuses 
paid to Senior Executives at the Department of Veterans Affairs has 
been, in our view, unfair and misdirected. All Americans share the 
desire to give our Nation's veterans the best care and service 
possible, and no group more than VA career executives, who have 
dedicated their lives and careers to doing just that. These career 
executives are well worth their salaries and performance awards. 
Newsweek, U.S. News and World Report, the Wall Street Journal and other 
publications have repeatedly cited the Department of Veterans Affairs 
as administering the ``finest healthcare in the world.'' Such 
commendations are significant considering it is a system that many 
agree has been underfunded and under additional stress since 2002. We 
believe such commendations have resulted from the tremendous work of 
the dedicated executives who receive these performance awards and their 
teams.
    Considering measures to restrict bonuses because of disagreement 
with policy decisions will unfairly punish career civil servants and 
achieve nothing in relation to those policy decisions. As the 
Subcommittee is aware, career executives work at the direction of 
political appointees. Consequently, concerns with Bush Administration 
decisions to request less money than is believed needed for VA 
healthcare and claims processing should be directed at the 
Administration's policymakers, not at the career Senior Executives who 
implement their decisions.
    At the Department of Veterans Affairs and throughout government, 
career executives are working to provide the best services they can 
within the resources they are given by the Administration and Congress.
    If Congress limits or discontinues SES performance awards, the best 
career executives will have another incentive to leave for the private 
sector or retirement, rather than continue to carry out these programs 
in a system that only provides a mere fraction of the compensation 
these professionals are worth and can earn in the private sector. The 
media has portrayed these performance awards as extravagant. However, 
career executives who run VA health facilities generally make less than 
50% of what their private sector counterparts earn in comparable 
positions. Many career SES earn as much as $70,000 a year less than 
some of the VA medical staff employed in the facilities under their 
direction. It is important to see performance awards in this 
environment and realize they are not lavish frills. They are a part of 
the compensation system for Senior Executives throughout government and 
are necessary to attract and retain the best leaders.
    The Senior Executive Service was created in 1979 to encourage and 
reward the highest performers in government. It provides both greater 
risks and greater rewards than the General Schedule. If a Senior 
Executive is not rated as fully successful or better, his or her salary 
can be decreased as much as 10 percent. If rated below fully successful 
twice in 3 years, the executive can be removed from the Senior 
Executive Service with what is essentially no right of appeal. Those 
rated ``fully successful'' often do not even receive an increase in 
salary that covers increases in the cost of living as happens 
automatically each year for General Schedule employees, who also 
receive locality pay adjustments and are eligible for within-grade 
increases. Suffice it to say, mediocre or poor performing employees do 
not last long in the Senior Executive Service, and even being 
considered to be ``fully successful'' can bring no upward salary 
adjustment.
    In contrast, high-performing Senior Executives can and often do 
receive substantial pay raises or performance awards. By law, up to 10 
percent of a Department's or Agency's SES pay pool can be set aside for 
annual performance awards. These performance awards range from 5 
percent to as much as 20 percent of a career Senior Executive's salary. 
As one would expect, top performers consistently receive performance 
awards. They are central to keeping those top performers in the 
Department of Veterans Affairs and in government.
    These performance awards are not given out without substantial 
oversight. By statute, a Performance Review Board (PRB) consisting of a 
majority of career Senior Executives evaluate performance appraisal 
recommendations from supervisors for accuracy and equitability 
throughout the agency and provide a final recommendation to the agency 
head. PRB members must and do exempt themselves from decisions about 
their own performance appraisals. This is the case at the Department of 
Veterans Affairs, as well as in every agency in government with 
oversight from the Office of Personnel Management.
    Some in Congress have called for PRB members to be ineligible for 
performance awards. This would be a serious mistake. Agencies select 
their highest performing career executives to be members of Performance 
Review Boards as impartial jurors of their peers. These high-performing 
executives also have good judgment and are most knowledgeable about the 
agency. Obviously many PRB members will be recommended for awards. 
Excluding them from receiving awards will result in only those career 
Senior Executives not recommended for awards being eligible to serve, 
and the quality of advice may very well be lessened. Further, who would 
wish to accept appointment to a PRB with the understanding that such 
membership would make them ineligible to receive performance awards? 
Recusal by the PRB member when his or her performance is being 
discussed remedies this.
    A recent survey by the Senior Executives Association (SEA) showed 
that many of the government's career Senior Executives were discouraged 
by their relatively new pay system. Performance awards, on the other 
hand, have existed since the inception of the SES and are one part of 
the SES pay system that works as intended according to a quarter 
century of comments from SEA's members.
    Even with performance awards, Senior Executives in government are 
paid well below what they are worth. Taking away performance awards 
will push the best and brightest out of the civil service and into jobs 
in the private sector or retirement. With 90 percent of those in the 
Senior Executive Service eligible to retire over the next decade and 
with no effective governmentwide succession plan designed to develop 
personnel trained to replace them, taking away performance awards would 
be moving in the wrong direction. Further, SEA consistently receives 
reports that many talented and accomplished GS-14's and 15's who would 
be prime candidates for the SES are dissuaded from aspiring to the SES 
given that they would take on additional responsibilities, enjoy fewer 
rights, and their pay adjustments would be far less reliable.
    As a former career Senior Executive myself, and as President of SEA 
for over 20 years, I can assure you that these career Senior Executives 
are driven by a love for public service over financial gain. They are 
dedicated to their work, and putting in 70-hour weeks is not rare. They 
must make the best decisions possible with the resources they are 
provided. Those who do the best jobs and make the greatest 
contributions deserve the rewards available under the current SES pay 
and awards system, and perhaps more.
    SEA understands that the Committee has some concerns about the 
budgetary policies and other policy decisions that have been made with 
regard to the Department of Veterans Affairs. SEA asks that the 
Committee seek answers to those questions through the Administration. 
We are concerned that the career Senior Executives are becoming an easy 
scapegoat for these matters over which they have no control.
    I thank you again for the opportunity to testify before this 
Subcommittee. SEA looks forward to working with this Committee and with 
the Department of Veterans Affairs to correct this unfortunate 
misperception. We hope to continue to be an effective voice of the 
Federal Government career executive leadership on this and other 
matters regarding the civil service.

                                 
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida
    Mr. Chairman,
    Thank you for holding this hearing today to discuss recent issues 
that have been developing within the VA. Today we will specifically be 
examining the process in which bonuses are awarded to VA officials and 
how the VA ensures that bonuses are awarded in an impartial process, 
and to award bonuses taking the Department's overall success into 
account.
    In 2006, the Department of Veterans Affairs awarded over $3.8 
million in bonuses to its employees. Coincidentally, this is right 
after Congress had to jump in and obtain emergency funding to cover a 
$1.5 billion budget shortfall.
    AP reports have shown that ``21 out of 32 officials who were 
members of the VA Performance Review Boards received more than half a 
million dollars in payments themselves.'' Additionally, the largest 
increase in spending for VA health in the past 77 years was introduced 
by Congress only recently. I want to ensure and reiterate that the 
priority for VA funds is to serve our country's veterans. Only after 
their needs have been met, and all departmental obligations fulfilled, 
should the VA bureaucrats receive rewards.
    However, I feel we must also be fair about this process. I do not 
believe we are questioning whether or not the VA should award bonuses, 
but rather the manner in which it does so. Actually, in a May 15th 
Washington Post article, Secretary Nicholson made an interesting 
argument that, ``bonuses help keep experienced officials and make their 
compensation more competitive with the private sector. Over the long 
run, keeping the most talented employees helps improve efficiency and 
maintains quality services.'' This is an accurate point, however, these 
bonuses must not be at the expense of veterans' services, or at the 
cost of taxpayers with million dollar budget bailouts.
    The VA's method for granting bonuses should be examined to 
determine whether there is any opportunity for improvement of the VA's 
SES bonus system. Our goal here always is to ensure that the VA funds 
are being properly distributed to the servicemen and veterans who 
deserve it. I look forward to hearing more from our witnesses today.
          POST-HEARING QUESTIONS AND RESPONSES FOR THE RECORD
                                     Committee on Veterans' Affairs
                       Subcommittee on Oversight and Investigations
                                                     Washington, DC
                                                   October 29, 2007
Honorable Gordon H. Mansfield
Acting Secretary
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, DC 20420

Dear Secretary Mansfield:

    On Tuesday, June 12, 2007, the Subcommittee on Oversight and 
Investigations of the House Committee on Veterans' Affairs held a 
hearing on the process by which the VA awards bonuses to members of the 
Senior Executive Service (SES). You testified at that hearing, 
accompanied by several of your colleagues. In your testimony, you 
committed to this Subcommittee that VA would implement the four 
recommendations of the Office of Personnel Management contained in 
OPM's June 1, 2007, letter to then-Secretary Nicholson. Those four 
recommendations were:

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

    Please confirm for the record that VA is, in fact, implementing 
these recommendations for executive performance evaluations being done 
for the current performance year (i.e., for bonuses to be awarded in 
December of this year) and describe in detail how VA is implementing 
the recommendations.
    In addition, please state whether the VA executive performance 
evaluation process for the current performance year includes the 
following elements and, if so, how the element is being implemented 
and, if not, why not:

    1.  Consideration during the PRB process and review by the 
Secretary of the existence and results of investigations by the VA 
Inspector General and/or the Office of Medical Investigations;
    2.  Appointment of PRB members who are not VA employees;
    3.  Assessment of VA SES bonuses with bonuses awarded at other 
Federal agencies.

    Finally, please tell the Subcommittee about any changes to the VA 
executive performance evaluation process for the current performance 
year that have not been described in your responses to the previous 
requests in this letter.
    We request you provide responses to the Subcommittee no later than 
close of business, Wednesday, November 28, 2007. For purposes of 
printing in the record, please also provide an electronic version of 
the response in Microsoft Word format to Ms. Caitlin Ostomel.
    If you have any questions concerning these questions, please 
contact Subcommittee on Oversight and Investigations Staff Director, 
Geoffrey Bestor, Esq., at (202) 225-3569 or the Subcommittee Republican 
Staff Director, Arthur Wu, at (202) 225-3527.

            Sincerely,

    HARRY E. MITCHELL
                                                  GINNY BROWN-WAITE
    Chairman
                                          Ranking Republican Member
                               __________
                                U.S. Department of Veterans Affairs
                                                     Washington, DC
                                                  November 28, 2007

The Honorable Harry E. Mitchell, Chairman
The Honorable Ginny Brown-Waite, Ranking Republican Member
Subcommittee on Oversight and Investigations
Committee on Veterans' Affairs
Washington, DC 20515

Dear Mr. Chairman:

    This is in response to your October 29, 2007, request for 
confirmation that the Department of Veterans Affairs (VA) implemented 
four recommendations contained in the Office of Personnel Management's 
(OPM) June 1, 2007, letter to then-VA Secretary R. James Nicholson. You 
asked that VA provide a detailed description of how it implemented 
these recommendations. Your letter also requested that we indicate 
whether, and to what extent, VA had incorporated the following elements 
into the executive performance evaluation process for the current 
performance year:

    1.  Consideration during the Performance Review Board (PRB) process 
and review by the Secretary of the existence and results of 
investigations by the VA Inspector General and/or the Office of Medical 
Investigator;
    2.  Appointment of PRB members who are not VA employees;
    3.  Assessment of VA Senior Executive Service (SES) bonuses with 
bonuses awarded at other Federal agencies.

    My responses are contained in the enclosed fact sheet which 
includes the information and training provided to PRB members to assist 
them in ensuring their recommendations on performance ratings, pay 
increases and SES bonuses are based on both organizational performance 
and individual contributions by each covered executive.
    I believe that incorporating the recommendations covered in the OPM 
Report and the elements discussed in the hearing have strengthened our 
executive performance appraisal process. We have committed to 
conducting post PRB assessment process reviews to identify ways we can 
further improve our process, particularly in the areas of strengthening 
performance standards, making meaningful distinctions among individual 
performance, and assessing organizational performance.
    I hope that this fact sheet is responsive to your concerns. I am 
available to provide additional or clarifying information, or discuss 
further, at your convenience. I am providing a similar response to the 
Honorable Ginny Brown-Waite, Ranking Republican Member, Subcommittee on 
Oversight and Investigations, Committee on Veterans' Affairs.

            Sincerely yours,
                                                Gordon H. Mansfield
                                                   Acting Secretary

Enclosure
                               __________
                               FACT SHEET
        The Department of Veterans Affairs (VA) Response to the
         Office of Personnel Management's (OPM) Report and the
        Subcommittee On Oversight and Investigations' Inquiry on
                VA's SES Performance Evaluation Process

ISSUE:

    To provide the Honorable Harry E. Mitchell, Chairman, Subcommittee 
on Oversight and Investigations, Committee on Veterans' Affairs, 
confirmation that VA has implemented OPM's four recommendations and the 
three specific elements contained in the Chairman's letter regarding 
VA's executive performance evaluation process for the current 
performance year and address how the elements were implemented.

DISCUSSION:

    This fact sheet provides confirmation that VA has implemented OPM's 
four recommendations and complied with the Subcommittee's three 
additional elements regarding VA's current executive performance 
evaluation process.
            OFFICE OF PERSONNEL MANAGEMENT'S RECOMMENDATIONS

RECOMMENDATION #1

    Ensure all executive performance plans focus at least 60 percent on 
achieving measurable results.

VA RESPONSE:

    OPM modified the Fiscal Year (FY) 2007 Senior Executive Service 
(SES) performance appraisal system certification criteria to establish 
results-oriented performance cultures in agencies. For SES programs 
being certified in FY 2007, OPM required that well over 50 percent of 
an executive's performance rating focus on achieving results. As a 
result of OPM's modification, I required all SES members in the 
Department have a performance plan with performance elements that 
contained weights in terms of percentages. At least 60 percent of the 
weight of each plan must be based on business results within a critical 
element. In addition, all SES performance plans must reflect 
Information Security as a critical element or sub-element to a critical 
element for the rating period that began October 1, 2006. The VA Human 
Resources (HR) staff met with OPM staff to obtain guidance on the new 
requirement and then worked closely with VA Administrations and Staff 
Offices to provide them assistance necessary to bring the SES 
performance plans into alignment with OPM's requirements by July 1, 
2007.

RECOMMENDATION #2

    Revise the VA Performance Review Board (PRB) awards determination 
process to ensure awards are granted based primarily on individual and 
organizational performance and results achieved. Discussions within the 
VA PRB should center on measurable results achieved and the awards 
scoring form used by the VA PRB (which leads the discussion and 
scoring) should more clearly focus on results.

VA RESPONSE:

    The Office of the Assistant Secretary for Human Resources and 
Administration (A/S HR&A) reviewed the current VA PRB awards 
determination process and developed modifications to the process to 
increase the emphasis placed on individual and organizational 
performance and results achieved. The modifications were briefed to the 
Chief of Staff and the Acting Secretary (Exhibit R.2.a) who approved 
the changes together with the FY 2007 SES performance guidelines for 
the 2007 bonus pool percentage, bonus amounts and pay adjustment 
percentages. The rating officials of staff office executives who fall 
under the purview of the VA PRB were briefed (Exhibit R.2.b) on the 
modifications made to the VA PRB awards determination process, 
including the FY 2007 performance guidelines approved by the Acting 
Secretary. In summary, the awards scoring form criticized in the OPM 
Report has been eliminated. Staff office organization heads have been 
given more autonomy to ensure meaningful distinctions are made related 
to the executives assigned under their immediate purview. This year, 
the staff office organization heads have been allotted bonus pools 
which represent a percentage of the aggregate career salary of their 
executives, from which they can recommend bonuses using up to 75 
percent of their allotted bonus pools within the guidelines (Exhibit 
R.2.c) approved by the Acting Secretary. The VA PRB focused their 
discussions on individual and organizational performance as it relates 
to the Department's performance as a whole.

RECOMMENDATION #3

    New PRB members should receive training on the policies and 
guidance of the SES PRB process and their role on the PRB. All PRB 
members should receive refresher training annually.

VA RESPONSE:

    All VA PRB members have been provided training on the policies and 
guidance of the SES PRB process and their roles on the PRB. This year, 
the Office of the A1S HR&A developed a training guide for the VA PRB 
members. The training was included as part of the first meeting of the 
VA PRB on November 14, 2007. The training guide presented to the PRB 
members is provided as Exhibit R.3.

RECOMMENDATION #4

    Management guidance issued to PRB members regarding how to consider 
organizational performance when determining ratings and awards should 
be made clear to all PRB members. A report summarizing organizational 
performance should be provided to PRB members with instructions on how 
to use the information in its deliberations.

VA RESPONSE:

    The guidance provided to the PRBs regarding how to consider 
organizational performance included a briefing by the Assistant 
Secretary for Management which includes a report of each organizational 
performance during the rating period along with instructions by the 
Chairperson of each PRB on how to use the information during the PRB 
deliberations. Exhibit R.4 consists of the briefing materials presented 
at the VHA, VBA and Department PRB meetings.

ELEMENT #1

    Consideration during the PRB process and review by the Secretary of 
the existence and results of investigations by the VA Inspector General 
and/or the Office of Medical Investigations.

VA RESPONSE:

    The VA PRB process has historically included submitting the names 
of all SES members recommended for a bonus to the Office of the 
Inspector General (OIG) along with an inquiry as to whether there were 
any ongoing or completed investigations on any of the SES members 
recommended for a bonus. The results of this inquiry have been reported 
to the appropriate Under Secretary or Assistant Secretary for action, 
and then to the approving official (the Secretary or his designee) 
along with the OIG reports. Also, the Deputy IG serves as a member of 
the VA PRB and is asked to identify any SES member recommended for a 
performance award who is the subject of an ongoing or completed 
investigation to ensure that the investigation has been factored into 
performance recommendations for any such SES member. This year, each 
organization head was required to confirm that the results and findings 
of external reviews, including those from the OIG, Government 
Accountability Office, Combined Assessment Program, and the Office of 
the Medical Inspector, etc., have been considered and were factored 
into each rating, pay adjustment, and bonus recommendation as 
appropriate. Exhibit E.1.a is the sample memorandum. Exhibit E.1.b is a 
sample template which VHA uses on a quarterly basis for each network. 
VHA reviews each item on the template to determine if revisions are 
needed.
    As you know, when the Offices of the Inspector General or Medical 
Inspector conduct an audit, investigation, or review of a Medical 
Center or Regional Office, they routinely provide that organization's 
supervisory level (Network Director in VHA; Area Director in VBA) with 
a copy of the findings and recommendations. The field facility provides 
a copy of their responses to the findings together with planned action 
to implement the recommended corrective actions to their Network or 
Area Director at the same time they respond to the OIG or Medical 
Inspector (MI). The Network and Area Director then track their 
implementation steps until they are satisfied that corrective measures 
are in place, and the deficiencies have been remedied.
    If the Medical Center or Regional Office does not concur with 
either the findings or recommendations, they can provide responses to 
the DIG or MI specifying their reasons why they do not agree. These may 
be disagreements over factual issues or over the most effective means 
of remedying the problem. These responses are also provided to the 
Network or Area Director to ensure that the supervisory office has a 
full understanding of the issue involved.
    As a consequence, the Network or Area Director, as the rating 
official, has a comprehensive, contemporaneous knowledge of an OIG or 
MI review at the same time as the affected executive, and is able to 
assess the nature and severity of the issues, as well as the 
effectiveness of any corrective action. They are able to fully consider 
the impact of these findings on an executive's performance evaluation, 
and are expected to do so by VHA and VBA senior management. Each rating 
official was required to stipulate that he or she had fully considered 
the results of any IG, MI, GAO, or other significant review and or 
investigation in recommending a performance rating for executives under 
their supervision.

ELEMENT #2

    Appointment of PRB members who are not VA employees.

VA RESPONSE:

    This year, each of the three VA PRBs (Central Office, Veterans 
Health Administration, and Veterans Benefits Administration) included a 
non-VA executive. The Federal Register Notice, published on October 30, 
2007, contains the full membership of the VA PRBs (Exhibit E.2.a). The 
non-VA PRB members are listed at the end of each PRB. A brief 
biographical sketch for each is included as Exhibit E.2.b. VA selected 
each of the external members on the basis of their familiarity with the 
Department's core functions, i.e., claims adjudication, healthcare 
delivery systems, and staff office support to a large organization. 
Each of the external members will be asked to provide their 
observations on the Department's SES performance review process, and to 
make specific recommendations on improvements that could be made.

ELEMENT #3

    Assessment of VA SES bonuses with bonuses awarded at other Federal 
agencies.

VA RESPONSE:

    Attached as Exhibit E.3 is the Office of Personnel Management 
Report on Senior Executive Service Pay for Performance for FY 2006. The 
report includes the rating, pay and awards data for the third year of 
pay for performance for Federal executives in the Senior Executive 
Service. The report illustrates that VA ranked eleventh in the 
percentage of Senior Executives who received bonuses and third in the 
average bonus amount given in FY 2006.

Department of Veterans Affairs
Office of Human Resources and Administration
November 2007

[A notebook containing all of the Exhibits was received by the 
Subcommittee staff, will not be printed, and will be retained in the 
Subcommittee files.]