oversight

Federal Downsizing: Effective Buyout Practices and Their Use in FY 1997

Published by the Government Accountability Office on 1997-06-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Chairman, Subcommittee
                 on Civil Service, Committee on
                 Government Reform and Oversight,
                 House of Representatives

June 1997
                 FEDERAL
                 DOWNSIZING
                 Effective Buyout
                 Practices and Their
                 Use in FY 1997




GAO/GGD-97-124
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      General Government Division

      B-277085

      June 30, 1997

      The Honorable John L. Mica
      Chairman, Subcommittee on Civil Service
      Committee on Government Reform and
        Oversight
      House of Representatives

      Dear Mr. Chairman:

      For the last several years, to help reduce and restructure their workforces,
      federal agencies have been paying separation incentives—commonly
      known as buyouts—of as much as $25,000 to employees to voluntarily
      leave federal service. The Department of Defense (DOD) has had buyout
      authority since January 1993.1 Most non-DOD executive branch agencies
      have had two buyout opportunities. The first, under the Federal Workforce
      Restructuring Act (FWRA) of 1994,2 generally gave agencies the authority to
      offer buyouts from March 30, 1994, through March 31, 1995. The second
      buyout opportunity was authorized by section 663 of the Treasury, Postal
      Service, and General Government Appropriations Act of 1997 (P.L.
      104-208, Sep. 30, 1996). It gave most non-DOD executive branch agencies
      the authority to offer buyouts from October 1, 1996, through December 30,
      1997. Certain agencies with their own buyout authorities were excluded
      from section 663 of the act.3 According to Clinton Administration officials,
      the buyouts have had three distinct purposes. Initially they were used to
      help ease reductions in the DOD civilian workforce following the end of the
      Cold War. Later, as part of the National Performance Review—the Clinton
      Administration’s initiative to reinvent government—buyouts were used in
      both DOD and non-DOD agencies to reduce what the administration has
      called “management control” positions. These positions included those
      held by managers and supervisors, and employees in personnel, budget,
      procurement, and accounting occupations. The third purpose of the
      buyouts has been to help save money by reducing the federal workforce as
      Congress and the President agreed to pursue a balanced budget.



      1
       P.L. 102-484, Oct. 23, 1992, authorized DOD buyouts through Sept. 30, 1997; P.L. 103-337, Oct. 5, 1994,
      extended DOD buyouts through Sept. 30, 1999.
      2
       P.L. 103-226, March 30, 1994.
      3
       Non-DOD agencies that had agency-specific buyout authorizations during fiscal year 1997 included the
      U.S. Department of Agriculture (USDA), Agency for International Development (AID), Central
      Intelligence Agency, National Aeronautics and Space Administration (NASA), Railroad Retirement
      Board and its Office of Inspector General, Smithsonian Institution, Bonneville Power Administration,
      and Federal Deposit Insurance Corporation.



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                   During the first non-DOD buyout window, both Congress and we began
                   expressing concerns over the planning and implementation of agencies’
                   buyout programs and workforce reduction initiatives.4 Congress raised
                   these concerns in a series of hearings and addressed some of them when it
                   passed P.L. 104-208, which directed agencies to prepare strategic buyout
                   plans for congressional review. The Office of Management and Budget
                   (OMB) required agencies to first submit their plans to OMB prior to
                   submitting them to Congress.

                   This letter responds to your request that we review the management and
                   results of agencies’ buyout programs authorized by P.L. 104-208. As agreed
                   with your office, we (1) identified practices that we believe are associated
                   with effective use of buyouts, (2) assessed the extent to which OMB
                   requirements and Office of Personnel Management (OPM) guidance for
                   implementing buyouts under P.L. 104-208 incorporated these practices,
                   and (3) determined whether selected agencies’ buyout programs were
                   better planned and implemented than was generally the case
                   governmentwide during the first non-DOD buyout program.

                   We included in our analysis the six agencies whose buyout programs had
                   been approved by OMB when we began our study in mid-December 1996:
                   the Departments of Energy (DOE)5 and Veterans Affairs (VA), the General
                   Services Administration (GSA), Internal Revenue Service (IRS), U.S.
                   Information Agency (USIA), and Minority Business Development Agency
                   (MBDA). Since then, OMB has approved buyout programs at six additional
                   agencies as of June 2, 1997.6


                   On the basis of our prior studies of buyout programs at DOD and non-DOD
Results in Brief   agencies, other organizations’ studies of downsizing, and our review of
                   proposed and enacted buyout legislation, we identified 13 practices that
                   we believe are associated with effective buyout usage. These practices
                   include, for example, prior to downsizing, ensuring that actions planned to
                   maintain productivity and service levels do not cost more than the savings

                   4
                    See, for example, Federal Employment: The Results to Date of the Fiscal Year 1994 Buyouts at
                   Non-Defense Agencies (GAO/T-GGD-94-214, Sep. 22, 1994); and Federal Downsizing: Better Workforce
                   and Strategic Planning Could Have Made Buyouts More Effective (GAO/GGD-96-62, Aug. 26, 1996).
                   5
                    DOE’s large contractor workforce has also had a buyout program that we reviewed. See Department
                   of Energy: Value of Benefits Paid to Separated Contractor Workforce Varied Widely
                   (GAO/RCED-97-33, Jan. 23, 1997).
                   6
                   The Bureau of Engraving and Printing, Merit Systems Protection Board, Department of the Treasury
                   Departmental Offices, Department of Housing and Urban Development, U.S. Mint, and the National
                   Weather Service.



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generated by the workforce reductions, preceding buyouts with an
economic analysis showing whether they would generate more net savings
than reductions-in-force (RIF) or attrition, and using buyouts selectively to
eliminate positions in order to accomplish specific organizational
objectives. Taken together, the practices can help agencies use buyouts as
a tool as they manage their downsizing efforts and engineer desired
changes to their workforces. Nevertheless, because each agency’s
circumstances are unique, all of these practices may not apply in every
buyout situation.

Ten of the 13 practices were generally reflected in OMB’s October 1996
bulletin to agency heads on how to implement the buyouts and/or OPM’s
December 1996 buyout guidelines. Four of these 10 practices were
required by P.L. 104-208, and OMB and/or OPM explained in more detail how
they were to be implemented. The other six practices, such as OMB’s
requirement for OPM to gather information on buyout activity under P.L.
104-208, were over and above what was required by statute.

Based on the justifications for, and the results of, selected agencies’
buyout programs, it appears that the six agencies’ buyout programs were
better planned and implemented than was generally the case among
non-DOD agencies in 1994 and 1995. Among the problems we reported on
during that buyout window was the granting of buyouts across the board
rather than prioritizing them to achieve specific organizational goals. We
also found that in a number of cases, buyouts were granted late in the
fiscal year, thereby diminishing their potential savings.

In contrast, in granting a total of 5,948 buyouts as of late spring 1997, the 6
agencies generally linked buyouts to achieving specific organizational
objectives and implemented their buyout programs in ways that tended to
increase savings. For example, agencies reported that they needed
buyouts to minimize the need for RIFs brought on by budget constraints
and to restructure their workforces. Thus, agencies reported targeting
their buyouts to those positions that met these objectives and did not grant
buyouts universally, as was often the case in 1994 and 1995. Moreover, as
required by OMB, agencies provided estimates of the savings anticipated
from the buyouts (thus ensuring that money would in fact be saved, but
not necessarily that buyouts offered more savings than other potential
separation strategies). Also, per OPM’s guidelines, in all but one instance
agencies reported that they limited the duration of their buyout programs
to a short window early in the fiscal year to increase savings.




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              Nevertheless, had OMB required agencies to include in their strategic plans
              the three practices associated with effective buyout usage that were not
              included in statutory, OMB, and OPM requirements and guidance for
              implementing the buyout authority, agencies may have further increased
              their savings. These practices included (1) prior to downsizing, ensuring
              that actions planned to maintain productivity and service levels do not
              cost more than the savings generated by reducing the workforce,
              (2) performing an economic analysis showing whether buyouts would
              generate more net savings than other separation strategies, and (3) giving
              priority for buyouts to employees not eligible for regular retirement.

              As Congress and the President negotiate further steps to balance the
              budget, the potential savings from reducing the workforce may continue to
              be considered. For example, in June 1997, H.R. 1778, the Defense Reform
              Act of 1997, was introduced in the House and included a provision to
              reduce DOD’s acquisition workforce by 124,000 positions over 4 years. To
              facilitate these reductions, H.R. 1778 contains a 1-year buyout authority,
              separate from DOD’s existing buyout authority, that provides buyouts to
              acquisition workforce employees affected by the mandated reductions.


              Buyouts were first authorized for non-DOD agencies by FWRA in 1994. In
Background    addition to requiring governmentwide downsizing, FWRA gave non-DOD
              agencies the authority to offer buyouts of as much as $25,000 to workers
              who left federal employment by March 31, 1995 (unless extensions were
              approved by agency heads, but not later than March 31, 1997). According
              to OPM data, 36,035 buyouts had been paid under FWRA through
              September 1996.7 Citing OMB’s estimate that the average full-time
              government worker costs more than $44,000 per year in net pay and
              benefits, the administration calculated that cutting 250,000 jobs can save
              well over $10 billion each year.

              Currently, statutory buyout authority for most non-DOD agencies expires
              on December 31, 1997, while the DOD buyout authority expires on
              September 30, 1999. However, continued efforts to balance the federal
              budget may raise the buyout option again for congressional consideration.


              We limited our review to the six agencies offering buyouts under
Scope and     P.L.104-208 that had their buyout plans approved by OMB when we began
Methodology
              7
               According to OPM data, as of September 1996 DOD had paid 92,432 buyouts under its own legislation.



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our study in mid-December 1996. These agencies included DOE, VA, IRS, GSA,
MBDA, and USIA.


To identify practices associated with effective buyout usage, we reviewed
our prior work on buyouts, the literature on workforce downsizing,8 and
the provisions of five proposed bills and 10 pieces of enacted legislation
containing buyout provisions as of the end of fiscal year 1996.9 From the
various buyout practices identified by these reviews, we selected those
that would require agencies to link their buyout programs to achieving
specific organizational objectives and ensure they were implemented in
ways that maximized savings in conjunction with achieving other
operational, human resource, and agency objectives. Taken together, we
believe that these practices could have alleviated many of the
shortcomings we observed in the first non-DOD buyout window in 1994 and
1995.

To assess whether OMB requirements and OPM guidance were consistent
with these practices, we compared them to requirements contained in
OMB’s October 24, 1996, buyout bulletin and OPM’s December 2, 1996, guide
to implementing buyouts under P.L. 104-208. Because the practices we
identified to meet the first objective had not been refined when OMB and
OPM issued their guidance, we would not necessarily expect to find all of
them reflected in the guidance. Our assessment, therefore, was not
normative.

To determine whether selected agencies’ fiscal year 1997 buyouts were
better planned and implemented than was generally the case
governmentwide during the 1994 and 1995 buyout window, we interviewed
agency human resource, planning, and budget officials; and we reviewed
agencies’ strategic plans to assess the extent to which the six agencies
linked their buyouts to specific organizational objectives and managed

8
 In particular, we drew upon a study by the National Academy of Public Administration (NAPA):
Effective Downsizing: A Compendium of Lessons Learned for Government Organizations, NAPA, 1995.
NAPA is a congressionally chartered independent nonpartisan organization that helps federal, state,
and local governments improve their performance.
9
 The proposed legislation we examined included the Federal Employee Separation Incentive and
Reemployment Assistance Act (H.R. 2751), Federal Employment Reduction Assistance Act of 1996
(H.R. 3532), as well as provisions of appropriations bills that authorized buyouts for specific agencies:
IRS, Bureau of Alcohol, Tobacco and Firearms, and Customs Service (H.R. 3756); Department of
Housing and Urban Development (H.R. 3666); and DOE (H.R. 3816). The enacted legislation we
examined authorized buyouts for DOD (P.L. 102-484, Oct. 23, 1992, and P.L. 103-337, Oct. 5, 1994); most
non-DOD agencies (FWRA, P.L. 103-226, Mar. 30, 1994, and P.L. 104-208, Sep. 30, 1996); Department of
Transportation (P.L. 104-205, Sep. 30, 1996, later superseded by P.L. 104-208); NASA (P.L. 104-204, Sep.
26, 1996); USDA (P.L. 104-180, Aug. 6, 1996); AID (P.L. 104-190, Aug. 20, 1996); and Smithsonian
Institution (P.L. 104-134, Apr. 26, 1996).



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                     their buyout programs to increase savings. We also discussed the
                     management of the buyout authority with OMB. We did not verify the
                     information that agencies and OMB provided.

                     We did our audit work in Washington, D.C., between December 1996 and
                     April 1997, in accordance with generally accepted government auditing
                     standards.

                     We requested comments on a draft of this report from the Directors of
                     OMB, OPM, and the heads of the six agencies. (In MBDA’s case, comments
                     were requested from the Secretary of Commerce, MBDA’s parent
                     organization.) The comments we received are summarized and evaluated
                     at the end of this letter.


                     On the basis of our earlier work, a review of the literature on workforce
Practices That Can   downsizing, and an analysis of specific provisions contained in 5 proposed
Result in More       bills and 10 pieces of enacted legislation containing buyout provisions, we
Effective Buyouts    identified 13 practices that we believe are associated with effective buyout
                     usage that could result in better planned buyout programs that are linked
                     to specific organizational goals and managed in ways that tend to increase
                     savings.

                     Because these are general practices, they may not apply in all
                     circumstances. For example, although agencies will generally save more
                     money by separating employees earlier in the fiscal year, in some cases it
                     may make sense to have later separations to adequately plan buyout
                     programs and notify employees, or ensure that essential work gets
                     accomplished. Therefore, these practices should be weighed against
                     agencies’ operational, human resource, or other objectives.

                     1. Identify the agency’s future operational, restructuring, downsizing, or
                     other goals and determine how buyouts will help meet those goals. This
                     will assist agencies in linking buyouts to specific organizational objectives.

                     2. Consider, prior to making downsizing decisions, how productivity and
                     service levels will be maintained with fewer employees. This could entail,
                     for example, redeploying employees, reinventing work processes,
                     automating processes, and contracting out.




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3. Prior to downsizing, ensure that actions planned to maintain
productivity and service levels do not cost more than the savings
generated by reducing the workforce.

4. Prioritize the granting of buyouts, targeting them to specific positions,
programs, occupations, grade levels, etc., as necessary to achieve
agencies’ organizational objectives and to help ensure that employees
critical to the mission of an agency are retained while surplus employees
are separated.

5. Identify likely buyout takers by obtaining information on employees’
eligibility for early and regular retirements, prior take-up rates, and other
factors to better forecast who is likely to take buyouts, how many, and
where they are likely to occur. Such an analysis will also help an agency
determine cost/savings and will aid in succession planning.

6. Perform an economic analysis to determine the savings generated by
buyouts relative to other separation strategies, such as RIFs. The analysis
should be done for the year of separation and a reasonable number of
subsequent years for which accurate assumptions and estimates can be
made. Such an analysis would help agencies determine whether buyouts
will in fact provide anticipated cost savings. Nevertheless, as we noted in
our earlier work, economic considerations are just one factor an agency
should consider when deciding between buyouts and other workforce
reduction options.10 Other factors include, for example, which
combination of separation strategies is most likely to achieve the full set of
agency operational and workforce goals while minimizing adverse effects
on workforce diversity and morale.

7. Give priority for buyouts to those employees resigning or retiring early.
Offer buyouts to those eligible for regular retirement when the first
applicant pool has been depleted or when, after a review of employee
demographics or as a result of employee surveys, it is evident that limiting
buyouts to those not eligible for regular retirement would not generate
sufficient numbers of voluntary separations. Although past buyouts
frequently have been taken by those who were retirement-eligible, giving
priority to employees not eligible for retirement may reduce the number of
payments made to employees who likely would leave without financial
incentives. It could also help agencies’ retirement rates return to
traditional levels more quickly. (In our prior work, we noted that recent

10
 Federal Downsizing: The Costs and Savings of Buyouts Versus Reductions-in-Force (GAO/GGD-96-63,
May 14, 1996).



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studies and our own analysis of agency-reported data suggest that when
employees anticipate buyout offers, normal attrition declines as some
employees delay their separations to receive buyouts.)11

Further, our cost analysis of RIFs versus buyouts concluded that RIFs can
generate more savings than buyouts over a 5-year period if the employees
separated by RIFs are (1) eligible for early or regular retirement (because
such employees would not be entitled to severance pay, which could be as
much as a year’s salary depending on age and years of service); and (2) do
not displace lower graded employees through a process known as
“bumping” and “retreating.”12

8. Exclude certain employees from receiving buyouts when doing so
would be financially and operationally advantageous to the government.
Such employees include, for example, those in positions defined as “hard
to fill,” or those who have received a recent recruitment, retention, or
relocation bonus.

9. Maximize current year payroll savings by separating employees early in
the fiscal year, preferably in the first quarter.

10. Prohibit the reemployment of buyout recipients unless they repay the
full amount of the buyout payment before the first day of work.13

11. Require agencies to contribute additional funds to the government
retirement fund (currently 15 percent of the final basic pay of each buyout
recipient) to ensure that any increased number of retirements is
adequately funded.

12. Limit the duration of the buyout program to as short a time period as
possible. The faster employees separate, the greater the savings, and the
sooner normal attrition will likely return to historical levels as employees
stop delaying their departures to receive a buyout.


11
  GAO/GGD-96-63.
12
  Bumping means displacing an employee in the same competitive area who is in a lower tenure group
(type of appointment category). Although the employee who displaces another employee through
bumping must be qualified for the position, it may be a position that he or she has never held.
Retreating means displacing an employee in the same competitive area who has less service within the
same tenure group. The position into which the employee is retreating must be the same or an
identical position the employee held in the past on a permanent basis.
13
 Both P.L. 104-208 and FWRA contained provisions that required buyout recipients to repay the full
amount of the buyout if, within 5 years of separating, they are reemployed by the federal government.
P.L. 104-208 requires this repayment prior to the buyout recipient’s first day of reemployment.



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                            13. Establish a tracking system to report relevant data on employees who
                            take buyouts. This can help agencies determine where buyouts are
                            occurring and who is taking them, spot any trends that could result in
                            workforce imbalances, and take timely corrective action.


                            Both OMB and OPM played important roles in the oversight and
OMB Requirements            implementation of the buyout authority. For example, as outlined in its
and OPM Guidance            October 1996 bulletin sent to agency heads on planning and implementing
Were Consistent With        the buyouts, OMB was to review and approve agencies’ strategic plans.14
                            These plans were required by P.L. 104-208 and were to provide information
Most of the Practices       on agencies’ intended buyout usage. The strategic plans were to include
Important for an
                            an organization chart showing the anticipated structure of the agency once
Effective Buyout        •
                            the buyouts were completed,
Program                 •   the positions and functions to be reduced or eliminated,
                        •   the number and amounts of voluntary separation incentive payments to be
                            offered, and
                        •   a description of how the agency will operate without the eliminated
                            positions and functions.

                            In addition to the statutory requirements, OMB required agencies to include
                            in their strategic plans information about the timing of buyout offers and
                            scheduled separation dates, the maximum dollar amount of buyout
                            payments if determined by the agency head to be less than $25,000, and an
                            estimate of the savings to be achieved in the fiscal years following the
                            planned buyout separations. OMB also indicated it monitored agencies’
                            buyout programs to ensure that workforce reductions and restructuring
                            efforts proceeded as planned and directed OPM to collect information on
                            agencies’ buyout payments.

                            According to an OMB official, OMB thoroughly reviewed agencies’ strategic
                            plans. In so doing, we were told that OMB officials checked to see whether
                            buyouts were targeted to specific positions, and, in those cases where an
                            agency was offering buyouts governmentwide, OMB looked to see that
                            agencies granted them according to some type of prioritization system. We
                            were also told that in some cases, OMB had agencies redo their plans until
                            they met OMB’s standards.

                            OPM helped agencies implement their buyout programs by issuing a guide
                            in December 1996. It contained detailed information on 22 topics ranging

                            14
                              Once the plans were approved by OMB, agencies were to submit them to Congress.



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from determining the amount of an employee’s buyout payment to setting
the buyout window and processing applications.

OMB’s requirements and OPM’s guidance generally reflected 10 of the 13
practices associated with effective buyout usage (see table 1). Four of
these 10 practices were already required by P.L. 104-208, and OMB and/or
OPM reemphasized them or explained how they were to be implemented.
Six practices, including OMB’s requirement for agencies to provide savings
estimates and for OPM to track buyouts, were in addition to what was
required by P.L. 104-208.




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Table 1: Desirable Buyout Practices Were Generally Reflected in Statutory, OMB, and OPM Requirements and Guidance
                                                                                      Where reflected
                                                                        OMB
Practice                                                                bulletin/guidance   OPM guidance         P.L. 104-208
1. Identify the agency’s future operational, restructuring,             X                   X
  downsizing, or other goals and determine how buyouts will help
  meet those goals.
2. Consider, prior to making downsizing decisions, how                  X                                        X
  productivity and service levels will be maintained with fewer
  employees.
3. Prior to downsizing, ensure that actions planned to maintain
  productivity and service levels do not cost more than the savings
  generated by reducing the workforce.
4. Prioritize the granting of buyouts, targeting them to specific       X                   X
  positions, programs, occupations, grade levels, etc. as necessary
  to achieve goals.
5. Identify likely buyout takers.                                                           X
6. Perform an economic analysis showing whether buyouts would
  generate more net savings than other separation strategies, such
  as RIFs or attrition.
7. Give priority to employees eligible for early retirement and those
  not eligible for regular optional retirement.
8. Exclude buyout coverage for employees when it would not be           X                   X                    X
  financially or operationally advantageous to the government to do
  so, such as employees in positions defined as “hard-to-fill,”
  reemployed annuitants, etc.
9. Maximize current year savings by separating employees early in                           X
  the fiscal year, preferably in the first quarter.
10. Prohibit the reemployment of buyout recipients unless they first    X                   X                    X
  repay the full amount of the buyout payment before the first day of
  work.
11. Include provisions for agencies to contribute additional funds      X                   X                    X
  to the government retirement fund to help pay for additional
  retirements resulting from buyouts.
12. Limit the duration of the buyout program to as short a time                             X
  period as possible.
13. Establish a tracking system to report relevant data on buyout       X                   X
  recipients.
                                                Source: GAO analysis.



                                                The three practices not reflected in statutory, OMB, and OPM documents
                                                were (1) prior to downsizing, ensuring that actions planned to maintain
                                                productivity and service levels do not cost more than the savings
                                                generated by reducing the workforce, (2) performing an economic analysis




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showing whether buyouts would generate more net savings than other
separation strategies, and (3) giving priority for buyouts to employees not
eligible for regular retirement. The savings generated by buyouts could
increase if these practices are adequately considered.

For example, with regard to the first practice, prior to downsizing, as an
agency develops an overall strategy for maintaining productivity and
service levels with fewer employees, the costs of these actions should be
considered to ensure that they do not exceed the savings generated by
reducing the workforce. Although some options that agencies can pursue,
such as reinventing work processes, could have comparatively low costs,
with other options, such as contracting out work formerly done by federal
employees, the costs could be more substantial. In such instances, it
would be appropriate for agencies to do a cost analysis and consider the
results when selecting a particular downsizing strategy. Generally, where
contracting is concerned, doing so would be consistent with OMB Circular
A-76.15

With regard to the second practice, although OMB required agencies to
estimate the savings produced by buyouts, this calculation by itself would
not help agencies determine whether alternative separation strategies
could have produced even greater savings (although, as indicated above,
noneconomic considerations such as impact on employee morale can also
play a role in determining the most appropriate separation strategy).

The third practice—giving priority for buyouts to those employees who
resign or take early retirement—can increase savings because it could
result in fewer buyouts paid to retirement-eligible employees, some of
whom might have left federal service without a buyout. Moreover, as we
noted in our earlier work, RIFs may be more economical for separating
retirement-eligible employees who cannot bump or retreat.16 These
employees are not eligible to receive severance pay, which, as noted
earlier, could be as much as a year’s salary.




15
  Under OMB Circular A-76, whenever commercial sector performance of a government operated
commercial activity is permissible, generally the cost of contracting is to be compared with the cost of
in-house performance to determine who will do the work. Circular A-76 procedures can assist with the
transition of current employees through its provision that federal employees and existing federal
support contract employees adversely affected by a decision to convert to contract have the
right-of-first-refusal for jobs for which they are qualified that are created by the firm that receives the
new federal contract.
16
  GAO/GGD-96-63.



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                             Based on our review of the buyout programs at the six agencies included
Selected Agencies’           in our study, it appears that statutory and OMB requirements, as well as
Buyout Programs              OPM’s guidelines, led to better planning and implementation of these

Were Generally Better        agencies’ buyout programs than was true during the 1994 and 1995
                             non-DOD buyout window. During that earlier buyout opportunity, agencies
Planned and                  did not consistently manage their buyout programs in ways that produced
Implemented Than             the greatest savings consistent with other organizational objectives.
Was Typically the
Case
Governmentwide
During the 1994 and
1995 Buyout Window
Our Prior Work Concluded     As we noted in our August 1996 study, which, among other things,
That Earlier Buyouts Could   reported the results of our survey of 24 departments and agencies that
Have Been Better Planned     granted the most buyouts between January 1993 and September 1995,17
                             most agencies did not precede their buyout programs with adequate
and Implemented              strategic or workforce planning. Strategic planning helps establish an
                             organization’s future goals and the work to be carried out, and workforce
                             planning helps determine what skills are necessary—and where—to
                             achieve those goals.

                             As a result, agencies often granted buyouts across the board rather than
                             prioritizing them to achieve specific organizational objectives. This
                             contributed to a variety of adverse operational impacts. For example, 15
                             agencies said that they had experienced a loss of corporate memory and
                             expertise, and 11 agencies said that there were work backlogs because key
                             personnel had separated.

                             Moreover, of the five agencies that said they were using contractors to
                             perform work previously done by employees who had taken a buyout, four
                             reported that some of the contract employees were former federal
                             workers who took buyouts and then returned to the agency under a
                             contract.18 Although the reemployment of buyout recipients as employees
                             of service contractors was not prohibited under the DOD and non-DOD
                             buyout authorities, we noted that a cost comparison would help ensure
                             that a particular contracting action was financially advantageous to

                             17
                               GAO/GGD-96-62.
                             18
                               Non-DOD employees hired under a personal services contract are required to repay the separation
                             incentive to the agency from which they had received it.



                             Page 13                                                GAO/GGD-97-124 Effective Buyout Usage
                            B-277085




                            government, and that any savings realized from buyouts would not be
                            offset by increased contracting costs.

                            We also found that in a number of instances, agencies granted buyouts late
                            in the fiscal year, substantially reducing the savings they generated. Some
                            agencies granted buyouts as late as September, the last month of the fiscal
                            year.


Six Agencies’ Fiscal Year   Although we did not have the data to compare the results of agencies’
1997 Buyouts Improved       buyout programs authorized by P.L. 104-208 with those authorized by FWRA
Compared to Earlier         in 1994 and 1995, available data suggest that the 6 agencies included in this
                            review managed their buyout programs more effectively than was typically
Non-DOD Buyouts             the case among all non-DOD agencies participating in the earlier buyout
                            program. Indeed, in granting a reported total of 5,948 buyouts, the 6
                            agencies we examined generally used buyouts as a management tool to
                            achieve specific organizational objectives and implemented their buyout
                            programs using methods that generally can be expected to produce the
                            greatest savings.

                            As shown in table 2, which summarizes the objectives and results of
                            agencies’ buyout programs, all of the agencies reported using buyouts to
                            reduce or eliminate the need for RIFs. Although agency officials could not
                            always determine precisely how many RIF separations they avoided by
                            using buyouts, buyouts clearly played an important role. Indeed, officials
                            at 5 of the 6 agencies in our study said that had it not been for buyouts,
                            well over 2,600 employees could have been involuntarily separated. MBDA’s
                            buyout program did not help the agency avoid the need for RIF separations.
                            (See app. I for more detailed information.)

                            The number of RIFs avoided is important for two reasons. First, as noted in
                            our prior work, in most instances, a buyout for a typical federal employee
                            separating within the first half of fiscal year 1995 could have generated
                            over $60,000 more in net savings for an agency than a RIF for each vacated
                            position over a 5-year period. Second, RIFs can have negative noneconomic
                            effects, such as decreased productivity, reduced morale, and diminished
                            workforce diversity. Because of the voluntary nature of buyouts, these
                            noneconomic effects are usually less problematic.

                            Agencies also reported using buyouts to help restructure their workforces.
                            Certain VA components, for example, used buyouts to help achieve a skill




                            Page 14                                    GAO/GGD-97-124 Effective Buyout Usage
B-277085




mix better suited to meeting its mission; IRS used buyouts to help complete
its field office reorganization.

Agencies said they generally targeted their buyouts, typically giving top
priority to surplus positions or those identified for elimination. Other
reported targets reflected the administration’s goal to reduce management
control positions.

Consistent with the buyout practices we identified, the six agencies we
examined increased buyout savings by, among other activities, generally
separating employees within the first quarter or early in the second quarter
of the fiscal year. DOE reported that 40 of its 98 approved buyout
separations occurred after March 31, 1997. However, DOE said that units
offering these buyouts had to first demonstrate their cost effectiveness
using a formula provided by the Department.

Also consistent with the buyout practices we identified, IRS indicated it
gave priority to employees not eligible for optional retirement. Some
agencies also reported they increased savings by targeting buyouts to
higher level employees.




Page 15                                    GAO/GGD-97-124 Effective Buyout Usage
                                      B-277085




Table 2: Objectives and Results of
Fiscal Year 1997 Buyout Programs at                                    DOE                            VA
Selected Agencies                     Buyout objectives                To help meet assigned          To change the skill mix of key
                                                                       staffing and funding targets   components of the workforce;
                                                                       while minimizing the need      reduce certain administrative,
                                                                       for RIFs.                      upper level, and supervisory
                                                                                                      positions; and alleviate the
                                                                                                      impacts of a proposed RIF.
                                      Buyout eligibility               Decisions on workforce     Varied with each component,
                                                                       reductions left to each    but included surplus
                                                                       component, typically based employees in consolidated
                                                                       on program needs.          facilities, administrative and
                                                                                                  clerical positions, and GS-14
                                                                                                  and above.




                                      Latest separation date           58 separations occurred     Jan. 3, 1997.
                                                                       prior to Mar. 31, 1997. An
                                                                       additional 40 employees
                                                                       separated after March 31,
                                                                       1997, where cost effective.
                                      Number of positions              128 at DOE, 30 at FERC.        1,687
                                      identified for elimination
                                      before buy-out
                                      Number of employees RIFed        78                             40
                                      as of May 1, 1997


                                      Extent to which buyouts          Buyouts combined with      Buyouts mitigated a large
                                      avoided RIFs                     internal and external job  number of RIFs, but RIFs are
                                                                       placements helped to       still expected.
                                                                       reduce the number of RIFs.
                                                                       Also, FERC planned to
                                                                       initiate a RIF in January
                                                                       1997, but because 30
                                                                       employees took buyouts,
                                                                       this was unnecessary.
                                      Number of buyouts authorized 160                                5,062


                                      Number of buyouts approved 68 DOE                               4,376
                                      as of late spring 1997     30 FERC
                                      Estimated net FY 1997            $1.0 DOE                       $65.5
                                      savings in millions of dollars   $0.30 FERC
                                      as reported in strategic plan
                                      (costs are shown in
                                      parentheses)a




                                      Page 16                                            GAO/GGD-97-124 Effective Buyout Usage
                                             B-277085




GSA                               IRS                                 MBDA                                USIA
To reduce employment levels       To help reorganize field            To minimize the need for RIFs       To mitigate the effects of a RIF
while minimizing the need for a   offices, achieve targeted           because of budget constraints,      and to provide flexibility in
RIF. Buyouts were offered         reductions at the national          buyouts were targeted toward        reducing employment in certain
selectively to avoid skill        office, and minimize the need       administrative support functions.   Foreign Service occupations.
imbalances or adversely           to conduct a RIF.
affecting customers’ needs.
Generally excluded from           Buyouts offered according to a      Persons affected by impending       Persons affected by proposed
receiving buyouts were            10-tiered priority system. First    RIF, including such positions as    RIF, including overstaffed
employees in the Federal          priority went to employees in       program and policy,                 occupations, higher grade
Supply Service, Office of the     noncontinuing positions not         administrative services, and        levels, and supervisory
Inspector General, Office of      eligible for optional retirement.   clerical and support.               positions.
Governmentwide Policy,
regional Federal Protective
Service positions, and certain
positions in the Federal
Telecommunications Service.
Jan. 3, 1997.                     Feb. 28, 1997.                      Dec. 21, 1996.                      Jan. 3, 1997




0                                 As many as 3,388.                   55                                  80


0                                 None, but RIFs were                 55                                  2
                                  anticipated once agreement
                                  was reached with the
                                  employees union.
According to GSA, the 140         According to IRS officials, had     None.                               Buyouts mitigated about half of
buyouts granted mitigated the     it not been for the buyouts,                                            the RIF impact.
need for about as many RIFs.      about 2,500 employees would
                                  have had to be separated in a
                                  RIF.




Up to 223.                        3,388 (although IRS estimated       30                                  100
                                  that 1,326 offers would be
                                  accepted).
140                               1,261                               7                                   60 Civil Service, 6 Foreign
                                                                                                          Service.
$9.0                              $14.4                               $0.15                               ($0.13)




                                             Page 17                                              GAO/GGD-97-124 Effective Buyout Usage
              B-277085




              a
               Because agencies did not always include in their strategic plans the assumptions and
              methodologies used to estimate savings, the savings are not comparable across agencies and
              do not necessarily reflect the actual savings that accrued once the buyout was completed.

              Source: GAO analysis of agency and OMB data.



              Our examination of the strategic plans agencies submitted to Congress
              shows that the plans generally complied with statutory and OMB content
              requirements. Because much of OPM’s guidance asked agencies only to
              “consider” certain factors, we could not determine the extent to which
              agencies’ buyout programs addressed OPM’s guidelines. However, agencies’
              buyout results suggest that agencies generally implemented their buyout
              programs consistent with OPM’s guidance. For example, it appears that
              agencies considered which functions, units, and positions would receive
              buyouts, and what the final organizational structure would be.

              With regard to offering additional buyouts before the authority expires in
              December 1997, DOE, VA, GSA, and USIA indicated that future buyouts were
              possible if circumstances warranted; MBDA said it would wait and see. IRS
              approved a buyout window for July 6 through July 19, 1997, as part of an
              agreement with the National Treasury Employees Union to further reduce
              the impact of an anticipated RIF.

              Each agency’s buyout program is described in greater detail in appendix I.


              Overall, the fiscal year 1997 buyout programs at the six agencies we
Conclusions   examined appear to have been better managed than was generally the case
              governmentwide during the 1994 and 1995 non-DOD buyout window. This
              was due in large part to statutory and OMB requirements, as well as OPM
              guidance, that were generally consistent with all but three of the practices
              that we found were associated with effective buyout usage. Together, the
              requirements and guidance resulted in more structured programs in which
              agencies indicated they used buyouts to accomplish specific objectives
              and reportedly will save millions of dollars in the years ahead.

              Nevertheless, opportunities for still further savings may have been
              identified if OMB had required agencies to not only estimate the savings
              generated by buyouts, but compare them to estimated savings produced
              by alternative separation strategies, such as a RIF. This would have allowed
              agencies to determine which separation strategy, or combination of
              strategies, would have produced greater savings. We have stated in this
              report and in our earlier work that economic considerations are just one



              Page 18                                              GAO/GGD-97-124 Effective Buyout Usage
                     B-277085




                     factor that agencies should address in determining which separation
                     strategy to use.19 By comparing the costs and savings of each strategy,
                     agencies could better determine which makes more economic sense and
                     better judge whether the economic advantages are outweighed by
                     noneconomic factors.

                     Additional savings also may have been achieved had OMB required agencies
                     to (1) include in their comparisons the costs and savings associated with
                     the steps agencies planned to take to maintain productivity and service
                     levels and (2) consider giving priority for buyouts to employees resigning
                     or retiring early. We found that these practices were associated with
                     effective buyout usage, but they were not reflected in statutory, OMB, and
                     OPM requirements and guidance.


                     All 13 of the practices we identified as associated with effective buyout
                     usage may not apply in all circumstances. For example, although agencies
                     will generally save more money by separating employees earlier in the
                     fiscal year, in some cases it may make sense to have later separations to
                     adequately plan buyout programs and notify employees, or ensure that
                     essential work gets accomplished. Therefore, these practices should be
                     weighed against agencies’ operational, human resource, or other agency
                     objectives.

                     The non-DOD buyout authority is to expire at the end of December 1997.
                     The DOD buyout program is to continue until September 30, 1999. However,
                     to the extent that further workforce reductions are required in response to
                     budgetary restrictions, buyouts may again be raised as an option to help
                     facilitate federal downsizing.


                     To achieve the full potential savings from buyouts consistent with other
Recommendations to   organizational objectives, we recommend that the Director, OMB, require
the Director, OMB    agencies to include the following in any future requests for buyouts.

                     1. Agencies should include information comparing the estimated costs and
                     savings of buyouts versus other separation strategies, such as RIFs, for the
                     separation year and a reasonable number of subsequent years for which
                     accurate assumptions and estimates can be made. Agencies should include
                     in their comparisons the anticipated costs and savings of steps planned to
                     maintain productivity and service levels, such as contracting out, if they
                     are expected to be significant. If RIFs are shown to save more money than

                     19
                       GAO/GGD-96-63, p. 12.



                     Page 19                                   GAO/GGD-97-124 Effective Buyout Usage
                     B-277085




                     buyouts but agencies chose to use buyouts, then OMB should require
                     agencies to justify their use of buyouts by indicating the noneconomic
                     factors the agency considered that made buyouts more advantageous than
                     a RIF.

                     2. Agencies should consider giving buyout priority to those employees
                     wishing to resign or take early retirement, and if such priority is not given,
                     provide an analysis showing why it is advantageous to allow
                     retirement-eligible employees to have equal access to buyouts.


                     We received written comments from the Secretary of Commerce; DOE’s
Agency Comments      Assistant Secretary for Human Resources and Administration; VA’s Deputy
and Our Evaluation   Assistant Secretary for Human Resources Management; IRS’ Chief of
                     Management and Administration; and the Director, USIA. Oral comments
                     were received from GSA’s Director of Personnel Policy and Planning, and
                     OMB’s Chief of the Budget Concepts Branch. We requested comments from
                     the Director of OPM but, despite several additional inquiries, comments
                     were not received in time to be included in this report.

                     GSA indicated it agreed with the information we provided on GSA, but it
                     provided no comments on our recommendations. The remaining agencies,
                     with the exceptions noted below, generally agreed with our findings,
                     provided updated information, and suggested ways of improving the
                     clarity of the report. We incorporated their suggestions where appropriate.

                     DOE  agreed with our recommendations but preferred that they not be
                     adopted governmentwide so that agencies maintain the flexibility to apply
                     them as needed. VA commented on our recommendation to give priority
                     for buyouts to employees who wish to resign or take early retirement. VA
                     noted that given the number and complexity of reorganizations facing the
                     agency, managers should retain the flexibility to determine buyout priority
                     appropriate to the situation.

                     We acknowledge the importance of flexibility and recognize that each
                     agency’s buyout situation is unique. We believe that our recommendations
                     do not limit agencies’ buyout options; rather, they help ensure that
                     agencies’ buyout decisions are supported by data and structured in such a
                     way that agencies realize the largest potential savings consistent with
                     other organizational objectives.




                     Page 20                                     GAO/GGD-97-124 Effective Buyout Usage
B-277085




The Chief of OMB’s Budget Concepts Branch and other OMB officials
provided us with comments on the draft. OMB officials said that the linkage
we made between buyouts and the requirement for an analysis comparing
the cost of performing work in-house with contracting out was not
relevant. Buyouts, they said, are a tool to facilitate downsizing and
minimize the need for RIFs. As such, buyouts are not directly related to
contracting. OMB noted that OMB Circular A-76 already requires cost
comparisons between in-house and contractor performance in a number
of circumstances, but not in all. Further, although OMB did not disagree
with our recommendation that it require agencies to give priority for
buyouts to those employees wishing to resign or take early retirement, OMB
said that even if buyouts are given to employees close to or at retirement,
buyouts could still save money if they accelerated those retirements.

In response to OMB’s comment on the lack of a relationship between
buyouts and contracting out, we added material that better clarifies this
connection. We also modified the list of practices to reflect the fact that
contracting out is one of several actions that agencies can consider prior
to making downsizing decisions to ensure that productivity and service
levels are maintained with fewer employees. We believe that the cost of
these actions is an appropriate consideration in determining which
employee separation strategy to adopt. Therefore, in our recommendation
that agencies should include information comparing the estimated costs
and savings of buyouts versus other separation strategies, we included a
requirement that agencies factor in the estimated costs and savings of
these actions as part of their comparisons.

We agree with OMB’s observation that buyouts could still save money in
certain instances if paid to employees eligible for regular retirement.
However, as we noted in our report, giving priority for buyouts to those
employees not eligible for retirement could reduce the number of buyouts
paid to individuals who may leave without an incentive. Although buyouts
have likely accelerated a number of retirements, our data suggest that in
other cases retirement-eligible employees may delay their separations to
receive buyouts. Without the prioritization we recommend, buyouts may
come to be viewed as a retirement “sweetener” for some individuals.


As arranged with your office, unless you announce the contents of this
report earlier, we plan no further distribution until 15 days after its issue
date. At that time, we will send copies to the Ranking Minority Member of
the Subcommittee, the Directors of OMB and OPM, the heads of the six



Page 21                                    GAO/GGD-97-124 Effective Buyout Usage
B-277085




agencies, and other interested parties. We will make copies available to
others on request.

Please call me on (202) 512-9039 if you have any questions concerning this
report. The major contributors to this report are listed in appendix II.

Sincerely yours,




Michael Brostek
Associate Director,
Federal Management and Workforce
  Issues




Page 22                                   GAO/GGD-97-124 Effective Buyout Usage
Page 23   GAO/GGD-97-124 Effective Buyout Usage
Contents



Letter                                                                                              1


Appendix I                                                                                         26
                         DOE Used Buyouts to Give Managers Flexibility in Reducing Its             26
Highlights of Selected     Workforce
Agencies’ Fiscal Year    VA Used Buyouts to Help Facilitate Workforce Restructuring                27
                         GSA Used Buyouts to Help Avoid a RIF                                      28
1997 Buyout              IRS Used Buyouts to Help Reorganize Field Offices and Reduce              29
Programs                   Headquarters Employment Levels
                         MBDA’s Buyout Program Targeted Specific Groups                            30
                         USIA Used Buyouts to Manage Its Workforce Reductions                      31

Appendix II                                                                                        32

Major Contributors to
This Report
Tables                   Table 1: Desirable Buyout Practices Were Generally Reflected in           11
                           Statutory, OMB, and OPM Requirements and Guidance
                         Table 2: Objectives and Results of Fiscal Year 1997 Buyout                16
                           Programs at Selected Agencies


                         Abbreviations

                         AID        Agency for International Development
                         DOD        Department of Defense
                         DOE        Department of Energy
                         FERC       Federal Energy Regulatory Commission
                         FWRA       Federal Workforce Restructuring Act
                         GSA        General Services Administration
                         IRS        Internal Revenue Service
                         MBDA       Minority Business Development Agency
                         NAPA       National Academy of Public Administration
                         NASA       National Aeronautics and Space Administration
                         OMB        Office of Management and Budget
                         OPM        Office of Personnel Management
                         RIF        Reduction-in-Force
                         USDA       United States Department of Agriculture
                         USIA       United States Information Agency
                         VA         Department of Veterans Affairs
                         VBA        Veterans Benefits Administration
                         VHA        Veterans Health Administration


                         Page 24                                 GAO/GGD-97-124 Effective Buyout Usage
Page 25   GAO/GGD-97-124 Effective Buyout Usage
Appendix I

Highlights of Selected Agencies’ Fiscal Year
1997 Buyout Programs

                      DOE  requested buyout authority to help it reach its funding targets and
DOE Used Buyouts to   allow it some flexibility in reducing the size of its workforce. Included in
Give Managers         DOE’s strategic plan was a provision for offering 21 buyouts to employees

Flexibility in        in 4 organizations funded by the Departmental Administration Account
                      (employees in other units could take buyouts as long as they were shown
Reducing Its          to be cost effective). RIF notices had been sent to 128 employees on
Workforce             October 29, 1996, with an effective date of January 3, 1997. DOE also made
                      provisions for the Federal Energy Regulatory Commission (FERC) to offer
                      30 buyouts through January 3, 1997. FERC was planning to issue 30 RIF
                      notices on January 7, 1997, and had hoped to use buyouts to reduce the
                      number of involuntary separations necessary.

                      According to DOE, 68 employees accepted buyout offers, and 78 employees
                      were ultimately RIFed. The buyouts, along with internal and external job
                      placements, helped minimize the number of involuntary separations. At
                      FERC, 30 employees accepted buyout offers. These separations, along with
                      internal placements, eliminated the need for a RIF.

                      According to a DOE representative, the heads of each organizational
                      component subject to downsizing had discretion to determine where to
                      cut the workforce. These decisions were generally based on program
                      needs, but they may also have been influenced by the administration’s
                      desire to reduce management control positions. Among the 128 DOE and 30
                      FERC positions identified for elimination, 43 were GS-14 and above, 52 were
                      science and engineering positions, 49 were administrative/management
                      control, and 6 were clerical.

                      Cost effectiveness was one of DOE’s nine explicit criteria for offering
                      buyouts. It was determined by the amount of salary and benefits DOE
                      would be obligated to pay if the employee stayed for the remainder of the
                      fiscal year. These savings were offset by the cost of the buyouts, including
                      the separation incentive and the additional contribution to the federal
                      retirement fund. On the basis of this formula, DOE calculated savings of
                      $329,424 at DOE and $264,839 at FERC for fiscal year 1997.

                      According to DOE as of early June 1997, 58 of its 98 buyout separations
                      occurred prior to March 31, 1997. Forty buyout separations took place
                      after March 31. Although these buyouts were later in the fiscal year, which
                      could have decreased the savings they generated, DOE said that each unit
                      offering these buyouts had to demonstrate their cost effectiveness
                      according to a formula DOE provided.




                      Page 26                                    GAO/GGD-97-124 Effective Buyout Usage
                     Appendix I
                     Highlights of Selected Agencies’ Fiscal Year
                     1997 Buyout Programs




                     VA requested authority to offer as many as 5,062 buyouts to help it convert
VA Used Buyouts to   to a primary/managed care model of health care delivery, integrate
Help Facilitate      facilities, reengineer business processes, and reduce the number of
Workforce            management control positions while minimizing the need for RIF
                     separations. RIF plans had already been approved for 1,687 employees at 19
Restructuring        separate facilities because of these reinvention initiatives.

                     As VA’s largest employer, the Veterans Health Administration (VHA) used
                     the most buyouts. As many as 4,442 buyouts were to be used to help
                     support the ongoing shift from a hospital-based method of health care
                     delivery to a primary/managed care model. VHA is to accomplish this
                     transition by, among other actions, streamlining operations, consolidating
                     nearby facilities, and eliminating duplicative clinical or support functions.

                     According to VHA officials, priority for receiving buyouts included surplus
                     employees in those facilities that were to be integrated and consolidated;
                     surplus medical occupations, such as physicians and registered nurses;
                     and supervisory positions.

                     Of the 4,442 buyouts authorized by VHA, 3,819 were granted. Of these, 818
                     were medical positions, 761 were wage grade, 2,171 were GS-13 and
                     below, and 69 were GS-14 and above. VHA officials explained that the
                     actual number of buyouts fell short of their expectations because of VHA’s
                     strict eligibility criteria. They noted that VHA could have paid the 4,442
                     buyouts authorized but chose not do so, because it would have violated
                     VHA’s buyout criteria. Further, the officials noted that the buyouts did not
                     attract young to middle-age employees, because the separation incentive
                     they would have received was too low to cause them to quit.

                     The Veterans Benefits Administration (VBA) was the second largest user of
                     buyouts at VA with up to 500 buyouts authorized to help it achieve the right
                     mix of skills in the right locations. VBA officials told us that VBA had 10
                     different eligibility categories. Receiving top priority for buyouts were
                     administrative and clerical positions and upper level employees in keeping
                     with the agency’s mandate to reduce management control positions. VBA
                     also targeted a large number of buyouts to employees in supervisory
                     positions GS-13 and below to reduce supervisory layering.

                     VBApaid a total of 483 buyouts. These included 443 approved for
                     employees in positions GS-13 and below, as well as 40 in positions GS-14
                     and above. VBA officials believed that the buyout program was successful
                     because it attracted certain medical officers that VBA had tried to separate



                     Page 27                                        GAO/GGD-97-124 Effective Buyout Usage
                      Appendix I
                      Highlights of Selected Agencies’ Fiscal Year
                      1997 Buyout Programs




                      for years but had been unable to. VBA officials also stated that the buyouts
                      helped them better manage VBA’s downsizing by targeting certain
                      supervisory functions in administrative and clerical occupations that were
                      no longer needed because VBA was moving to a team/coaching
                      environment. Further, the officials said that buyouts mitigated the need for
                      RIFs. VBA had already convened a national team to organize a RIF of as many
                      as 500 employees.

                      VA estimated that buyouts would save about $65.5 million in fiscal year
                      1997. For VA to achieve these savings, buyout recipients generally had to
                      separate no later than January 3, 1997. However, VA granted an exception
                      to employees who did not become eligible for early retirement until after
                      December 31, 1996. These employees were required to apply during the
                      established window but could delay their separations until they became
                      eligible for early retirement.


                      According to GSA’s strategic plan, the President’s Fiscal Year 1997 budget
GSA Used Buyouts to   called on GSA to reduce its employment levels by 337 full-time positions.
Help Avoid a RIF      This decrease was over and above the reductions mandated under the
                      previous buyout authority and could not be accomplished by attrition
                      alone. Thus, to avoid separating employees by a RIF, GSA planned on using
                      buyouts to achieve its downsizing goals.

                      GSA’s plan also notes that the agency intended to carefully target its
                      buyouts and thereby avoid some of the shortcomings of the 1994 and 1995
                      buyout window when buyouts were granted nonselectively. According to
                      GSA’s plan, these agencywide buyouts, along with normal attrition, resulted
                      in personnel reductions that were not always consistent with GSA’s
                      organizational or business goals and led to skill imbalance. By tailoring its
                      fiscal year 1997 buyout program, GSA hoped to avoid exacerbating these
                      imbalances or making it harder to address customers’ needs.

                      To this end, GSA’s buyout program excluded the Federal Supply Service
                      and the Office of Inspector General, which were already on track toward
                      meeting their workforce goals; the Office of Governmentwide Policy and
                      the Federal Protective Service, which were both growing in size because
                      of greater responsibilities; and certain regions and/or job series where
                      there was a shortage in specific telecommunications skills.

                      GSA granted 140 buyout applications from among the 223 employees who
                      had signed declarations of intent indicating their desire to receive a



                      Page 28                                        GAO/GGD-97-124 Effective Buyout Usage
                        Appendix I
                        Highlights of Selected Agencies’ Fiscal Year
                        1997 Buyout Programs




                        buyout. According to a GSA official, this was probably sufficient to allow
                        GSA to achieve its remaining workforce reduction goals by attrition. If not,
                        GSA said it might consider opening another buyout window in the fall of
                        1997.

                        GSA concluded that for the buyouts to be cost effective, it could offer them
                        only in the first quarter of the fiscal year. Consequently, buyout recipients
                        had to be off the employment rolls by January 3, 1997. GSA’s buyout
                        program also indicated that buyout decisions were to be based on the
                        impact individual buyouts would have on GSA’s mission, which may have
                        increased the buyout’s cost effectiveness.


                        The objectives of the IRS buyout program were to complete its field office
IRS Used Buyouts to     reorganization, selectively downsize its headquarters, and reduce or
Help Reorganize Field   eliminate the need to conduct a RIF. Facing funding reductions that caused
Offices and Reduce      it to accelerate the pace of its reorganization efforts, IRS identified 3,388
                        positions for realignment or elimination. About 70 percent of these
Headquarters            positions were in field offices.
Employment Levels
                        Although 3,388 buyouts were authorized, IRS projected that 1,326 would
                        actually be accepted. According to IRS data as of late spring 1997, 1,261
                        buyouts had been approved. Of these, 935 (74 percent) went to field
                        employees, and 326 (26 percent) went to headquarters employees. Had it
                        not been for the buyouts, agency officials estimated that about 2,500
                        employees would have had to be separated in a RIF.

                        To further reduce the impact of an anticipated RIF, as part of an agreement
                        with the National Treasury Employees Union, IRS plans on offering another
                        round of buyouts from July 6, 1997, through July 19, 1997. Under the terms
                        of the agreement, the buyouts are to be limited to the number of RIF
                        separations expected within each commuting area and are to be offered in
                        accordance with specific eligibility criteria. Receiving top priority are
                        those employees expected to be separated in a RIF who are not
                        immediately eligible for early or regular retirement. Employees selected
                        for a buyout are to be off the rolls by August 2, 1997.

                        IRSsupported its strategic plan with extensive economic analysis that not
                        only calculated the savings generated by buyouts, but compared those
                        savings to those it estimated would accrue from a RIF. Assuming 1,326
                        buyouts, IRS calculated in its strategic plan that buyouts would produce




                        Page 29                                        GAO/GGD-97-124 Effective Buyout Usage
                   Appendix I
                   Highlights of Selected Agencies’ Fiscal Year
                   1997 Buyout Programs




                   $8.4 million in net savings compared to separating employees through a RIF
                   and would result in $14.4 million in net fiscal year 1997 savings.

                   IRS offered buyouts according to a 10-tiered priority system. Buyouts were
                   first offered to employees in noncontinuing positions, then to employees
                   in positions where departures would create vacancies that could be filled
                   by people in noncontinuing positions. Consistent with one of the practices
                   associated with effective buyout programs that we identified, IRS gave
                   priority for buyouts to employees not eligible for optional retirement.


                   MBDA was forced to reduce its personnel expenses following severe budget
MBDA’s Buyout      cuts that reduced MBDA’s funding from $44 million in fiscal year 1995 to
Program Targeted   $28 million in fiscal year 1997, a decline of about 36 percent. To that end, it
Specific Groups    planned on conducting a RIF that would affect approximately 73 positions,
                   about 55 of which would ultimately be abolished. To minimize the impact
                   of the impending RIF, MBDA offered 30 buyouts to employees in the 75
                   positions affected by the RIF.

                   According to agency officials, the RIFs—and hence the buyouts—were
                   targeted toward general administrative support functions rather than
                   programmatic positions. The cuts were aimed at headquarters units that
                   included data resources, planning and evaluation, and the office of
                   administration, because such services were more readily available from
                   MBDA’s parent agency, the Department of Commerce.


                   MBDA  officials said that although MBDA was prepared to offer 30 buyouts
                   and expected that 10 to 15 employees would accept them, 7 employees
                   actually received buyouts. According to agency officials, the reason for the
                   shortfall was that most employees in the targeted positions were ineligible
                   for retirement and wanted to eventually return to the government. The
                   reemployment restrictions in the buyout authority would have prevented
                   them from returning to federal employment for 5 years unless they first
                   repaid the full amount of the buyout.

                   Because of the low acceptance rate, agency officials said that buyouts did
                   not help MBDA avoid a RIF, and 55 employees were ultimately separated in
                   this manner. Nevertheless, agency officials noted that the buyouts,
                   together with RIF separations, helped MBDA achieve its goal of reducing the
                   ratio of headquarters personnel to field personnel, moving from 1.7:1 to
                   1:1.5. In its strategic plan, MBDA estimated an average savings of $5,000 per
                   buyout recipient.



                   Page 30                                        GAO/GGD-97-124 Effective Buyout Usage
                       Appendix I
                       Highlights of Selected Agencies’ Fiscal Year
                       1997 Buyout Programs




                       USIA’s ongoing reinvention efforts, combined with funding restrictions, led
USIA Used Buyouts to   the agency to identify 80 positions for elimination. To minimize the impact
Manage Its Workforce   of the impending RIFs, USIA offered up to 100 buyouts. The buyouts were to
Reductions             also reduce over-staffed occupations, such as Foreign Service secretaries,
                       and decrease the number of employees in higher grade levels and
                       supervisory positions.

                       Although employees in the 80 positions likely to be eliminated had priority
                       for receiving buyouts, USIA also allowed “swapping.” Under this procedure,
                       USIA considered buyout applications from employees elsewhere in the
                       agency in comparable series and identical grade levels who could
                       substitute for the employees in affected positions.

                       USIA paid 66 buyouts. Of these, 60 were Civil Service and 6 were Foreign
                       Service. As a result of the buyouts, an agency official estimated that
                       buyouts mitigated about half of the RIF impact. Further, once the buyout
                       program was completed, two employees were separated by RIF.

                       Although USIA calculated that the buyouts produced a net cost of $133,000
                       in fiscal year 1997, it estimated annual savings in fiscal year 1998 and each
                       year beyond at $3.24 million. In addition to reduced salary expenses, these
                       savings were also generated by phasing out programs, consolidating
                       offices, and streamlining administrative functions, among other activities.

                       USIA’s management of its buyout program also tended to increase savings.
                       For example, in addition to aiming buyouts at higher graded positions and
                       generally requiring separations by January 3, 1997, USIA granted separation
                       deferments only to those individuals assigned overseas and for a period
                       not to exceed 60 days. Further, in instances where swapping took place, if
                       there were multiple candidates, USIA reported that the buyout was granted
                       on the basis of the greatest salary savings and least separation cost, among
                       other criteria.




                       Page 31                                        GAO/GGD-97-124 Effective Buyout Usage
Appendix II

Major Contributors to This Report


                     Steven J. Wozny, Assistant Director
General Government   Robert Goldenkoff, Evaluator-in-Charge
Division
                     Thomas R. Kingham, Senior Evaluator
Denver Office




(410102)             Page 32                                  GAO/GGD-97-124 Effective Buyout Usage
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