Federal Downsizing

To help reduce and restructure their workforces, federal agencies have been paying separation incentives, or "buyouts," of as much as $25,000 to employees to voluntarily leave federal service. On the basis of its previous studies of buyout programs at federal agencies, studies by other organizations, and its review of proposed and enacted buyout legislation, GAO identified 13 practices associated with effective buyout usage. These practices include ensuring prior to downsizing that actions planned to maintain productivity and service levels do not cost more than the savings generated by the workforce reductions; preceding buyouts with an economic analysis showing whether they would generate more net savings than reductions-in-force 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 to 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.

GAO noted that: (1) on the basis of GAO's prior studies of buyout programs at DOD and non-DOD agencies, other organizations' studies of downsizing, and GAO's review of proposed and enacted buyout legislation, GAO identified 13 practices that it believes are associated with effective buyout usage; (2) 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; (3) 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; (4) based on the justifications for, and the result 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; (5) among the problems GAO reported on during that buyout window was the granting of buyouts across the board rather than prioritizing them to achieve specific organizational goals; (6) 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; (7) 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); (8) 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; (9) 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; (10) these practices included: (a) 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; (b) performing an economic analysis showing whether buyouts would generate more net savings than other separation strategies; and (c) giving priority for buyouts to employees not eligible for regular retirement; and (11) as Congress and the President negotiate further steps to balance the budget, the potential savings from reducing the workforce may continue to be considered.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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