I. Managements Discussion and Analysis - The Year in Review
Effective Management of Strategic Resources
The FDIC must effectively manage and utilize a number of critical strategic resources in order to carry out its mission successfully, particularly its human, financial, and information technology (IT) resources. Major accomplishments in improving the Corporation's operational efficiency and effectiveness are outlined below. Although the FDIC is not subject to the President's Management Agenda, many of these efforts are consistent with that agenda.
Human Capital Management
The FDICs employees are its most important strategic resource. For that reason, it seeks to continue to be the employer of choice within the financial regulatory community and to operate a human resources program that attracts, develops, evaluates, rewards and retains a high quality, results-oriented workforce. This was a difficult challenge over the past 12 years because the Corporation was in a continuous downsizing mode as it completed the residual workload from the banking and thrift crises of the late 1980s and early 1990s. FDIC staffing declined from approximately 23,000 (including employees assigned to the Resolution Trust Corporation) in 1992 to fewer than 5,100 at year-end 2004.
At the President's Quality Award Ceremony (l to r): Deputy OMB Director Clay Johnson, FDIC CFO Steve App, DRR's Sharon Allen, Kevin Sheehan, Director Mitchell Glassman, Dan Walker, Nancy Champagne, Richard Salmon, OPM Director Kay Coles James, and FDIC Deputy to the Chairman John Brennan.
During 2004, the Corporation undertook a comprehensive analysis of its future staffing needs and formulated a human capital strategy to guide the FDIC through the rest of this decade. This strategy is based upon the implementation of a new Corporate Employee Program that will become the foundation for the establishment of a smaller more adaptable permanent workforce that reflects a more collaborative and corporate approach to meeting critical mission functions. This workforce will be capable of adapting quickly to significant unexpected events or changes in workload priorities in the future. The FDICs future workforce will also require a somewhat different mix of skill sets than are available in the current workforce. The Corporation initiated steps in late 2004 to begin reshaping its workforce to be consistent with these concepts, including changes to current training programs administered by its Corporate University. The Corporation also began the development of a new human capital framework that, when implemented, will provide a methodology for future workforce planning and succession management.
The FDIC will require more flexibility in its management of human resources in order to realize its vision of its future workforce. To that end, the Corporation worked with the Office of Personnel Management to obtain expanded delegations of administrative authority. It also submitted to the Congress in late 2004 proposed legislation that would provide the FDIC with additional personnel authorities that are tied directly to the FDICs unique mission responsibilities. These included independent hiring authority, greater flexibility in the use of term appointments, the ability to re-employ annuitants and waive dual compensation restrictions, authority to establish a separate appeals process for disciplinary actions, and the ability to hire experts and consultants in the same manner as other federal agencies.
During the past year, the Corporation continued to emphasize the linkage of individual pay to concrete accomplishment and contributions. Approximately 400 managers and supervisors were converted to a new Corporate Manager Program in April 2004. This program is similar to the Executive Manager classification and pay program instituted in 2002 and replaces the old program of fixed annual pay increases with a new pay and bonus program in which pay increases and bonuses vary by individual and are not guaranteed. More than 1,000 non-bargaining unit employees were also converted to a new Contributions-Based Compensation Program that provides a wider range of possible rewards than the Corporate Success Award program established in 2002.
The Corporation also initiated a new buyout and early retirement program in late 2004. This program is targeted to reduce identified staffing surpluses and to support the realignment of the current workforce, consistent with identified future workforce needs. The Corporation also announced planned reductions-in-force in 2005 and 2006, if necessary, to eliminate employee surpluses and support realignment of the FDIC workforce.
Reducing Costs and Improving Financial Management
The FDICs operating expenses are largely paid from the insurance funds, and the Corporation continuously seeks to improve its operational efficiency in fulfillment of its fiduciary responsibilities to the funds. To that end, the Corporation engages annually in a rigorous planning and budgeting process to ensure that budgeted resources are properly aligned with workload. That is particularly true with respect to staffing, since personnel costs constitute well over 60 percent of the Corporation's annual administrative expenses. In late 2004, the FDIC Board of Directors approved management recommendations to reduce authorized staffing by 674 positions, to 4,750, by year-end 2005.
Authorized year-end 2005 staffing is substantially lower than previous authorized staffing levels for the resolutions and receivership business line as well as the IT and administrative support functions. Staffing reductions were approved for the Division of Resolutions and Receiverships and the Legal Division following a lengthy analysis of current and projected future workload in the resolutions and receivership management area and reflect the smaller number of financial institution failures for the past several years. Staffing reductions in the Division of Information Resources Management and the Division of Administration reflect improved business processes, savings from contract consolidation, and outsourcing of functions where cost effective.
The FDIC adopted significant changes in 2004 to the sourcing strategy for obtaining contractor support for its IT functions. These changes incorporate the concept of partnering with the private sector and other federal agencies; the use of performance-based, results-driven contracts; the consolidation of nearly 100 support contracts into several large multi-year, all-encompassing contracts; and the appointment of full-time professional oversight managers to manage and administer these contracts. The structure of the new contracts places the emphasis on contractor performance and links contractor compensation to results achieved rather than costs incurred. The Board of Directors approved the consolidation of contracts supporting both the IT infrastructure and applications support.
Several years ago, the Corporation separated its investment expenses from its annual operating budget in order to ensure a more rigorous approach to the approval and management of major investment initiatives. The single most significant current initiative is the construction of additional FDIC office and multipurpose buildings adjacent to the existing facilities at Virginia Square. This project will eliminate the need for the Corporation to lease commercial space in downtown Washington, DC, and will substantially reduce future facility costs. The project remains on target for occupancy in the first quarter of 2006. Management processes have been implemented to ensure adherence to the project budget and schedule. Construction of the new building will provide estimated cost savings of approximately $78 million (net present value) over 20 years, when compared to the projected costs associated with the current headquarters leasing arrangements.
Improving the FDICs Use of Information Technology
The Corporation established a new Chief Information Office (CIO) Council in February 2004. The overall mission of the Council is to serve as an executive-level advisory group to the CIO, and to help shape Corporate IT strategy and activities. Establishing the CIO Council is part of a multipronged approach to re-engineering the Corporation's IT program. The CIO Council advises the CIO on all aspects of adoption and use of IT at the FDIC. Accomplishing the Corporations strategic goals and business objectives depends on achieving successful results from IT initiatives. One of the first initiatives of the Council was to conduct an analysis of FDIC's current applications portfolio. An estimated 30 existing applications were retired in 2004, with a larger number of retirements expected to occur over the next year.
Members of the CIO Council (l to r): Seated, CIO Council Chair Mike Bartell and Sandra Thompson. Standing: (l to r): Jerry Russomano, Eric Spitler, Gail Verley, Rus Rau, Ann Bridges Steely and Doug Jones. Not shown: Ron Bieker, Maureen Sweeney, Janet Roberson, and Gail Patelunas.
The FDIC also greatly expanded its use of its e-government portal, FDICconnect (a secure Web site that allows FDIC-insured institutions to conduct business and exchange information with the FDIC, other federal regulatory agencies and various state banking departments), in 2004. FDICconnect will enable the FDIC to comply with the Government Paperwork Elimination Act of 1998 (GPEA) and address Presidential guidelines that direct government agencies to establish electronic alternatives to current paper processes where feasible. Nearly 44 percent of FDIC-insured institutions have registered to use FDICconnect.
In 2004, the FDIC expanded the capabilities of FDICconnect to allow institutions to submit applications seeking extensions of time for completing a transaction or condition related to previously approved applications; prior FDIC consent to reduce or retire capital stock or capital notes or debentures; and approval to make golden parachute payments or excess non-discriminatory severance plan payments. In November, the FDIC Board approved use of FDICconnect as the vehicle for all insured financial institutions to receive their quarterly insurance assessment invoices and eliminated the requirement for institutions to sign and return correct certified statements, thus eliminating burden on the institutions.