Statement of Arleas Upton Kea Director Division of Administration Federal
Deposit Insurance Corporation on Alternative Personnel Systems the FDIC
Experience Before the Subcommittee on Oversight of Government Management,
the Federal Workforce and the District of Columbia of the Committee on
Homeland Security and Governmental Affairs U.S. Senate
September 27, 2005
Room 342, Dirksen Senate Office Building
Chairman Voinovich, Senator Akaka, and members of the subcommittee, thank you for
the opportunity to testify on behalf of the Federal Deposit Insurance Corporation (FDIC)
on our experiences administering and managing a personnel system at an independent
federal corporation.
The FDIC, having long managed a personnel system that is more flexible than most
government departments and agencies, has significant insights into the importance of
personnel systems that permit a government agency to react to change and achieve its
mission. In my testimony today, I will briefly highlight how the FDIC's personnel system
has helped us achieve our mission, the importance of flexible personnel policies in
today's rapidly changing financial industry and our experience with "pay banding" and
"pay for performance."
Background
The FDIC has served as an integral part of the nation's financial system for over 70
years. Established by the Banking Act of 1933 at the depth of the most severe banking
crisis in the nation's history, the immediate contribution of the FDIC was the restoration
of public confidence in banks. Today, the FDIC's mission remains unchanged. We
maintain public confidence in our nation's financial system in three important ways.
First, we insure deposits held in our nation's banking system. Second, we examine and
supervise banks for safety and soundness and compliance with laws and regulations.
Finally, we handle the resolution of failed banks when that becomes necessary. In
carrying out its mission, the FDIC does not receive appropriated funds. The FDIC is
funded by insurance assessments on the deposits held by insured institutions and by
interest earned on the deposit insurance funds.
Benefits of Flexibility in the Use of Temporary Appointments
In the late 1980s and early 1990s, the FDIC faced a banking crisis unprecedented since
the Great Depression. With as many as 200 bank failures a year at the peak of the
crisis, the FDIC was faced with a massive challenge of handling these failures in a way
that maintained public confidence in the financial system. The FDIC successfully
responded to that challenge as it has to other challenges throughout its history.
Part of the reason for that success was the flexibility the FDIC had to adjust the size of
its workforce rapidly and substantially. In the early 1980's, the FDIC employed 4,000
Deposit Insurance Corporation on Alternative Personnel Systems the FDIC
Experience Before the Subcommittee on Oversight of Government Management,
the Federal Workforce and the District of Columbia of the Committee on
Homeland Security and Governmental Affairs U.S. Senate
September 27, 2005
Room 342, Dirksen Senate Office Building
Chairman Voinovich, Senator Akaka, and members of the subcommittee, thank you for
the opportunity to testify on behalf of the Federal Deposit Insurance Corporation (FDIC)
on our experiences administering and managing a personnel system at an independent
federal corporation.
The FDIC, having long managed a personnel system that is more flexible than most
government departments and agencies, has significant insights into the importance of
personnel systems that permit a government agency to react to change and achieve its
mission. In my testimony today, I will briefly highlight how the FDIC's personnel system
has helped us achieve our mission, the importance of flexible personnel policies in
today's rapidly changing financial industry and our experience with "pay banding" and
"pay for performance."
Background
The FDIC has served as an integral part of the nation's financial system for over 70
years. Established by the Banking Act of 1933 at the depth of the most severe banking
crisis in the nation's history, the immediate contribution of the FDIC was the restoration
of public confidence in banks. Today, the FDIC's mission remains unchanged. We
maintain public confidence in our nation's financial system in three important ways.
First, we insure deposits held in our nation's banking system. Second, we examine and
supervise banks for safety and soundness and compliance with laws and regulations.
Finally, we handle the resolution of failed banks when that becomes necessary. In
carrying out its mission, the FDIC does not receive appropriated funds. The FDIC is
funded by insurance assessments on the deposits held by insured institutions and by
interest earned on the deposit insurance funds.
Benefits of Flexibility in the Use of Temporary Appointments
In the late 1980s and early 1990s, the FDIC faced a banking crisis unprecedented since
the Great Depression. With as many as 200 bank failures a year at the peak of the
crisis, the FDIC was faced with a massive challenge of handling these failures in a way
that maintained public confidence in the financial system. The FDIC successfully
responded to that challenge as it has to other challenges throughout its history.
Part of the reason for that success was the flexibility the FDIC had to adjust the size of
its workforce rapidly and substantially. In the early 1980's, the FDIC employed 4,000
people. By the early 1990's, the FDIC employed over 23,000 people. Some employees
were hired for one year terms that could be renewed annually as justified by the
workload. Others were hired for terms of up to four years that could not be renewed.
Other government agencies had similar excepted authorities and in some case those
authorities may have been abused. As a result, the FDIC and other government
agencies no longer have these authorities, except under the most limited conditions.
As significant as the hiring process was, so too was the downsizing that followed over
the past decade. Today, the FDIC again employs fewer than 5,000 people. As the
workload associated with the banking crisis decreased, these limited term employment
contracts were ended. Employees hired under term authorities were essential to the
success of the liquidation and resolution activities of the FDIC and performed very well.
However, they understood that eventually they would work themselves out of a job.
These employees enjoyed certain civil service protections and FDIC benefits and
gained marketable skills. The FDIC is grateful to the literally thousands of employees
who saw this nation through its banking crisis.
Benefits of Flexible Buyout Authority
To complete the downsizing necessary at the FDIC, more than the nonrenewal of
temporary appointments was necessary. For over a decade, the FDIC, whenever
possible, consistently chose voluntary departures of employees through buyouts instead
of involuntary reductions-in-force (RIFs). The FDIC's greater flexibility to offer generous
buyouts proved very useful. Many career employees accepted these offers, greatly
reducing the need for involuntary separations.
Benefits of Retraining
Retraining is not always the answer but the FDIC has used this method successfully in
order to provide flexibility in the workforce, prepare the FDIC for the future, avoid RIFs,
and retrain and retain highly skilled employees. When the FDIC's failure resolution
activity declined, we knew we had employees with great ability but no work. To address
this issue, the FDIC received authority from the U.S. Office of Personnel Management
(USOPM) to waive certain job level requirements and create "Crossover Programs" to
allow employees who were trained to handle bank failures to become bank examiner
trainees without a significant reduction in pay. These employees began a rigorous
retraining program and started new careers at the FDIC's expense. It was a successful
program. Two-thirds of these employees became commissioned bank examiners and
the FDIC retains the resolution experience should the need arise to redeploy these
"crossover employees" to handle bank failures.
Costs of Existing Reduction-in-Force Procedures
Despite all of the above-mentioned efforts, involuntary separations still were necessary.
RIFs are difficult to do and do not always provide satisfactory results. They are
disruptive to an organization and the outcomes are unpredictable. Seniority and
were hired for one year terms that could be renewed annually as justified by the
workload. Others were hired for terms of up to four years that could not be renewed.
Other government agencies had similar excepted authorities and in some case those
authorities may have been abused. As a result, the FDIC and other government
agencies no longer have these authorities, except under the most limited conditions.
As significant as the hiring process was, so too was the downsizing that followed over
the past decade. Today, the FDIC again employs fewer than 5,000 people. As the
workload associated with the banking crisis decreased, these limited term employment
contracts were ended. Employees hired under term authorities were essential to the
success of the liquidation and resolution activities of the FDIC and performed very well.
However, they understood that eventually they would work themselves out of a job.
These employees enjoyed certain civil service protections and FDIC benefits and
gained marketable skills. The FDIC is grateful to the literally thousands of employees
who saw this nation through its banking crisis.
Benefits of Flexible Buyout Authority
To complete the downsizing necessary at the FDIC, more than the nonrenewal of
temporary appointments was necessary. For over a decade, the FDIC, whenever
possible, consistently chose voluntary departures of employees through buyouts instead
of involuntary reductions-in-force (RIFs). The FDIC's greater flexibility to offer generous
buyouts proved very useful. Many career employees accepted these offers, greatly
reducing the need for involuntary separations.
Benefits of Retraining
Retraining is not always the answer but the FDIC has used this method successfully in
order to provide flexibility in the workforce, prepare the FDIC for the future, avoid RIFs,
and retrain and retain highly skilled employees. When the FDIC's failure resolution
activity declined, we knew we had employees with great ability but no work. To address
this issue, the FDIC received authority from the U.S. Office of Personnel Management
(USOPM) to waive certain job level requirements and create "Crossover Programs" to
allow employees who were trained to handle bank failures to become bank examiner
trainees without a significant reduction in pay. These employees began a rigorous
retraining program and started new careers at the FDIC's expense. It was a successful
program. Two-thirds of these employees became commissioned bank examiners and
the FDIC retains the resolution experience should the need arise to redeploy these
"crossover employees" to handle bank failures.
Costs of Existing Reduction-in-Force Procedures
Despite all of the above-mentioned efforts, involuntary separations still were necessary.
RIFs are difficult to do and do not always provide satisfactory results. They are
disruptive to an organization and the outcomes are unpredictable. Seniority and