Effective Management of Strategic Resources

Introduction
The FDIC recognizes that it must effectively manage a number of critical strategic resources in order to successfully carry out its mission and realize the annual performance goals set forth for its three major programs. Strategic resource management facilitates the Corporation’s mission-critical activities and helps minimize risk to the DIF, while simultaneously aligning and deploying the Corporation’s resources to the areas where they are most needed. An overview of planned 2008 initiatives to enhance the Corporation’s management of its key strategic resources follows.

Human Capital Management

The FDIC’s most important resource is the “intellectual capital” that its employees bring to bear on the accomplishment of its mission. For that reason, the FDIC strives to attract, develop and retain a highly skilled, diverse and results-oriented workforce and to be regarded as a “best place to work,” especially among employers whose workforces consist primarily of financial professionals. Because as much as 40 percent of the FDIC’s current workforce is projected to retire over the next 10 years, the FDIC will have a unique opportunity to re-shape its workforce to meet the challenges that are emerging in the U.S. financial system of the early 21st Century. The impending wave of retirements has also enabled the Corporation to move past the extended period of downsizing that followed the end of the banking and thrift crises in the early 1990’s and to gradually resume hiring, with a focus on the skills sets that are needed today to provide regulatory oversight to an increasingly complex financial system. In 2008, the FDIC will pursue a number of human capital initiatives as it begins to build its workforce of the future.

Strategic Workforce Planning and Readiness
When the FDIC resumed hiring of new entry-level employees in 2005, it adopted a fundamentally different strategy for staffing its core mission occupations in the post-downsizing era. This new strategy emphasized the development of a more mobile and flexible workforce that was cross-trained in the Corporation’s key mission functions and could be re-deployed rapidly to address new workload priorities in response to unexpected external events or changing conditions in the banking industry and the broader economy. These principles were the foundation for the new Corporate Employee Program (CEP), which has become the primary vehicle for filling new entry-level positions in the FDIC’s core bank examiner occupation as well as other key positions in the Corporation’s business divisions.

During the first year of the CEP, participants are provided with basic exposure to each of the FDIC’s key business processes: deposit insurance, risk-management examinations, consumer protection/compliance examinations, and resolutions/receivership management. After the completion of the first year, participants are assigned to a specific commissioning track. Upon successful completion of the CEP, employees will have earned a commission in their primary area of specialization and competency certifications in at least two other specialties outside of that primary area of specialization. Internal certification programs have been or are being developed for deposit insurance claims, consumer compliance examinations, Bank Secrecy Act compliance examinations, and franchise and asset marketing. Over 300 employees (more than 15 percent of the current examiner workforce) were being trained under the CEP at the end of 2007, and that number is expected to increase to approximately 500 (over 25 percent of the examiner workforce) by the end of 2008. CEP recruiting and selection will continue to be a major corporate priority in 2008.

The Corporation has also emphasized the addition of advanced technical skills to its workforce through both increased mid-career hiring, the development of advanced internal training curricula (discussed below), and support for numerous other professional certification programs. The primary focus of outside, mid-career hiring has been on mid-career risk management and compliance examiners who are able to have a more immediate impact on the FDIC’s current examination workload; Ph.D. economists and others with advanced quantitative and risk modeling skills that are needed to assess risk in large insured institutions; consumer protection researchers and specialists; and attorneys with regulatory enforcement, consumer protection, and litigation backgrounds (new, entry-level attorneys are hired through the Corporation’s Honors Attorney Program, which provides rotational experiences within the FDIC’s Legal Division that are similar to those in the CEP).

In order to ensure readiness in light of the current turmoil in financial markets and parts of the banking industry, the Corporation in 2007 temporarily re-employed a number of retired risk management and compliance examiners to assist with the increasing examination workload as well as the growing workload associated with coaching the large number of trainees in the CEP. In 2008, the Corporation will extend this concept to the receivership management area by temporarily re-employing retired resolutions and receivership specialists to ensure that the FDIC can successfully address the uncertain institution failure workload.

Succession Management
The FDIC faces particular challenges as many of its long-term, highly skilled employees move into retirement. To help address these succession management issues, the FDIC will pursue a number of initiatives that are designed to retain, where possible, the skills and knowledge of its current employees for a longer time period while equipping a new generation of employees to assume the responsibilities of departing employees.

To address these projections, FDIC leadership developed several multi-year programs to assess current and potential leadership strength, identify skills shortages, and shape measures to close whatever gaps are identified:

• Knowledge Management Program. The FDIC will design, develop and begin implementation of a formal knowledge management program in 2008. This will include creation of a multi-year knowledge management strategic plan that will focus on the full spectrum of knowledge management.

• Corporate Executive Development Program. Baseline leadership competencies and gaps were identified in 2006 and 2007 through review of an Office of Personnel Management (OPM) competency assessment tool. To address the identified gaps and ensure that there are corporate managers who are prepared to advance to executive level positions as they become vacant, the Corporation will implement a pilot Corporate Executive Development Program at the beginning of 2008. It will provide 18 months of intensive classroom and on-the-job training to high-potential supervisors and senior technical specialists.

• Talent Review Program. The FDIC plans to extend the talent review process begun in 2006 with its executive-level employees to corporate managers and senior technical professionals in 2008 and 2009. Under this program, the Corporation’s senior leadership conducts a comprehensive review of specific individual positions, identifying those which are the most likely to become vacant within a 3-5 year period; assessing strategic options for filling those positions if they become vacant, including the availability of potential successors within the current FDIC workforce; and identifying development gaps for those possible successors.

• Temporary “Overhire” Initiatives. Two divisions, DRR and the Legal Division, are projected to be significantly more vulnerable than other FDIC organizations to the loss of critical skills and experience as a result of retirements over the next five years. Each division is projected to lose up to 35 percent of its current workforce to retirement by year-end 2012. To help address that vulnerability, the FDIC Board of Directors in late 2007 authorized both organizations to temporarily exceed their approved staffing authorizations in 2008 by “double encumbering” critical positions to facilitate the orderly transfer of knowledge to new employees and by augmenting current staffing in critical skill areas to address current and projected future workload requirements.

• Retention of Experienced Employees. In 2008, the Corporation plans to evaluate various options for retaining some of its most experienced employees beyond their anticipated retirement dates, where their skills and experience are deemed critical, to facilitate an orderly transfer of knowledge to new employees.

Employee Engagement
The FDIC conducted its first annual employee survey in 2007 to supplement the Federal Human Capital Survey administered to all FDIC employees by the OPM in 2004 and 2006 (FDIC employee surveys will continue annually in 2008 and future years as required by statute). Both surveys provided similar results. The FDIC’s employees enjoy their work, believe it is important, and get a sense of personal accomplishment from it. They also have a good understanding of the Corporation’s mission and strategic direction and know how their work fits into the FDIC’s goals and priorities. Employees are also highly satisfied with their pay and benefits (highest rated among federal agencies in the 2006 OPM survey), the FDIC’s
family-friendly culture (highest rated among federal agencies in the 2006 OPM survey) and programs for work-life balance, their physical work environments, and the training, technological and other resources that are provided to them by the FDIC.

But, the two surveys also revealed significant opportunities for improvement in internal communications, employee empowerment, leadership and trust. Accordingly, the FDIC will begin a multi-year initiative in 2008 to fundamentally remake its organizational culture to address these issues. The Corporation will also work with its employee union to implement a new pay-for-performance system that is more transparent to employees and is perceived by employees to be fairer than the current system.

Employee Learning and Growth
The FDIC promotes the continuous learning and development of its employees and substantially augmented the resources available to employees for training in 2007 through the pilot Professional Learning Accounts (PLA) Program. The PLA Program has been enhanced for 2008, based on employee feedback on the first year of the pilot program. This program provides funding for employees to pursue a comprehensive Career Development Plan, developed in collaboration with their immediate supervisors, to develop and enhance their current job skills as well as skills needed for more advanced positions.

Under the leadership of the FDIC’s Corporate University (CU), several training programs to equip employees with advanced technical skills have been or are being developed:

• In 2008, the Corporation will continue developing new resolutions and receivership commissioning programs in support of these mission critical functions. In 2007, certificate programs were completed and implemented covering basic elements of each of these programs.

• In 2007, the Corporation completed the development of its Advanced Compliance Examination School (ACES), a post-commissioning education program, and completed training of approximately one-third of its commissioned compliance examiners in this new curriculum. All remaining commissioned compliance examiners will complete this training in 2008 and 2009.

• In 2008, the Corporation will complete development and begin implementing of an advanced large-bank training and employee development program to expand and ensure the continuing availability within the FDIC workforce of the technical skills required to insure, examine and, if necessary, resolve the failure of large or complex insured financial institutions. These include advanced classroom and on-the-job training and development in the areas of retail credit risk, wholesale credit risk, and capital markets.

• In 2008, CU will continue to define internal and external certificate programs and/or other credentialing programs that will be used to recognize employees with advanced/specialized skills that needed to fulfill the Corporation ’s core mission responsibilities.

• CU will continue to provide leadership development program offerings for executives, managers and supervisors to prepare the FDIC’s current and future leaders to meet the Corporation’s ever-growing challenges. These programs will provide a solid foundation of talent to address succession management needs and promote workforce flexibility.

The FDIC will use all of these learning programs as opportunities to strengthen its organizational culture, build key competencies, and promote the importance of its corporate values.

Financial Resources Management
The FDIC’s operational expenses are largely paid from the investment earnings on the Deposit Insurance Fund and the assessment’s paid by insured financial institutions. The Corporation takes very seriously its fiduciary responsibilities to use these funds in an efficient and cost-effective manner. To that end, the Corporation engages annually in a rigorous planning and budget formulation process to ensure that budgeted resources reflect and are properly aligned with workload projections and designated corporate priorities, and it has an exceptional record of controlling its operating expenses in recent years. The Corporation’s 2007 operating expenses totaled approximately $1.0 billion, slightly less than its operating expenses five years earlier, in 2003. The FDIC’s 2008 Corporate Operating Budget totals $1.14 billion.

In 2006 and 2007, the Corporation’s senior managers participated in a series of cost forums designed to help them better understand both the direct and indirect costs of the FDIC’s various programs. These discussions utilized the enhanced cost information that is available from the New Financial Environment accounting system. The cost forums will continue in 2008. The Corporation will also begin a multi-year effort in 2008 to examine and identify opportunities for reducing its IT costs.

Increased IT Efficiency
The FDIC is committed to improving its operational efficiency in the IT area by identifying opportunities to streamline maintenance activities that may lead to future cost savings. Since the majority of the current IT expenses are from ongoing maintenance costs, the FDIC conducted an in-depth study of maintenance activities and supporting staff and contractor expenses in 2007. The data provided an insight into areas that may be streamlined or eliminated. Further analysis and recommendations will be completed in 2008. This also provides a baseline to gauge future savings.

Improved IT Business Alignment
The FDIC has established a number of organizational and governance structures to ensure that its IT program supports and is fully aligned with the Corporation’s business strategies and goals. Business line executives participate in several IT governing bodies – the Capital Investment Review Committee, the CIO Council, and the IT Principals Group – that make recommendations on which IT development projects should be funded. Proposed IT development projects are reviewed and rated based on a standard set of criteria that focuses on business benefit, risk mitigation, cost analysis, and technical feasibility. Once a project is approved, the governing bodies monitor its progress and adjust resources, as necessary. In 2008, the Corporation will continue to refine the current governance structures to enhance their effectiveness.

The management of IT development projects is also supported by an independent Project Management Office (PMO), which provides support for a comprehensive “portfolio view” of all IT development projects. A “portfolio-view” requires a disciplined approach to capacity planning and prioritization of approved and proposed IT development projects. In conjunction with regular portfolio reviews, project priorities are reassessed on a continuing basis in light the progress and availability of funding for each project. Funding may be periodically reallocated among projects, based upon the outcome of these reviews. Effective capacity planning ensures that the appropriate resources are allocated to meet evolving business priorities, which often compete for the same finite pool of staff expertise and budget. In 2008, the PMO will continue to improve its analysis and monitoring capabilities for managing the IT portfolio.

Enhanced Corporate Privacy Program
The FDIC is committed to protecting the security of sensitive information that it receives from financial institutions and individuals. The Corporate Privacy Program requires mandatory privacy training for all FDIC employees and contractors to ensure that they are aware of the requirements for safeguarding sensitive information and know where to obtain privacy-related reference material. Other major initiatives that were previously undertaken include the identification of systems that required modification to protect personally identifiable information (PII); the implementation of a strategy to protect PII that is processed, stored, transmitted and accessed by FDIC contractors; and completion of PII remediation of FDIC application systems. Enhancements to the Corporate Privacy Program will continue in 2008, with initiatives such as the automation of controls on the copying of sensitive data, the implementation of standardized encryption for removable media, and the strengthening of controls over shipped data.

Enhanced Information Security Program
The FDIC’s information security program seeks to proactively assure the integrity, confidentiality and availability of corporate information by requiring an ongoing commitment by employees throughout the organization. In 2007, the information security program continued its ongoing cycle for assessing risks, developing and implementing effective security procedures, and monitoring the effectiveness of those procedures. In 2008, the FDIC will focus on ensuring that the Corporation is in compliance with all laws and directives regarding security, such as OMB Circular A-130, the Federal Information Security Management Act, the E-Government Act, and guidance from the National Institute of Standards and Technology. In addition, 2008 initiatives will include the completion of the three-year certification and accreditation reviews and the continued expansion of penetration testing to identify and eliminate external vulnerabilities.

Enterprise Risk Management
As an integral part of its stewardship of the DIF, the FDIC maintains a comprehensive
risk-management and internal control program, which is designed to promote the efficiency, effectiveness, control, and risk-focusing of internal operations throughout the Corporation. The Office of Enterprise Risk Management (OERM) oversees this program by providing guidance to all divisions and offices on issues such as internal controls, system security, privacy, operational effectiveness and efficiency, post-project reviews, and audit follow-up. During 2008, OERM will continue its efforts on those initiatives and will work with divisions and offices to ensure the successful implementation of the new Automated Procurement System, upgrade of the New Financial Environment system, and completion of a corporate-wide clean-up of shared network folders.