IRS is human resources reform model, scholars say

Government executives intending to reform their hiring, performance management and other human resources programs should check out the Internal Revenue Service, a new report says.

The 99,000-employee tax agency has completely revamped its HR shop over the past five years to help the agency get the best new employees, hold managers accountable for results and provide better training to employees, according to the IBM Endowment for the Business of Government study.

"The IRS provides a revealing study of ways in which HR practices can contribute to the achievement of mission and organizational transformation in pursuit of mission," said professors James Thompson of the University of Illinois-Chicago and Hal Rainey of the University of Georgia.

In 1998, Congress ordered the IRS to restructure amid allegations that the agency treated taxpayers poorly, had poor technology systems and low employee morale.

Under Chief Human Resource Officer Ron Sanders, the IRS created an Office of Strategic Human Resources at its headquarters, whose 300 employees studied the overall IRS workforce and developed overarching policies and programs to match up the workforce with the agency's goals. Administrative work, such as payroll and benefits transactions, was transferred to a new services division.

The structure "has allowed me to focus on designing HR systems for the IRS in a very strategic way and not be bogged down in operational issues," Sanders told the authors. "I don't have to worry about processing personnel actions and cycle time. Somebody else worries about that." The IRS also put human resources offices into each of the agency's four main operating divisions to make sure each division's different HR needs were met.

The IRS also forced managers to compete for jobs after eliminating 25 percent of top- and mid-level management positions. Managers had to show they had leadership skills to get the jobs by describing events in which they had demonstrated those skills.

To get rank-and-file workers, the IRS has sent 27 full-time recruiters to college campuses and job fairs. In 2001, the agency found 441 top-notch candidates for revenue agent jobs and hired 361 of them.

Other human resources efforts at the IRS have included:

• Recruiting technical and organizational leaders using a special authority that lets the IRS pay leaders up to $50,000 more per year than other agencies can.
  
• Targeting buyouts and early retirement offers to employees whose skills are no longer needed, rather than offering such incentives to anyone who will take them.
  
• Increasing the training budget from $76 million in 1998 to $115 million in 2003.
  
• Establishing an online accounting training program with a consortium of 16 universities.
  
• Creating a $2 million fund from which employees can draw money to learn skills and knowledge that could help them get promoted or move into a different job at the agency.
  
• Developing a pay-for-performance system for managers.

The IRS has had less success creating so-called competency-based job descriptions, rather than traditional descriptions explaining the knowledge, skills and abilities needed for jobs. The system "is still incredibly confusing to our workforce, and that means executives all the way down to frontline employees," an HR executive told the authors of the report.

The report's authors said the IRS' experiences can help other agencies as they modify their HR systems. More and more agencies are either obtaining or seeking freedom from standard federal personnel rules, including the Homeland Security Department, the Defense Department and NASA.