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

GAO United States

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

Results in Brief On the basis of our prior studies of buyout programs at DOD and non-DOD

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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B-277085 

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.

Background Buyouts were first authorized for non-DOD agencies by FWRA in 1994. In

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.

Scope and

Methodology

We limited our review to the six agencies offering buyouts under

P.L.104-208 that had their buyout plans approved by OMB when we began

7

According to OPM data, as of September 1996 DOD had paid 92,432 buyouts under its own legislation.

Page 4 GAO/GGD-97-124 Effective Buyout Usage
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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).

Page 5 GAO/GGD-97-124 Effective Buyout Usage
B-277085 

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.

Practices That Can

Result in More

Effective Buyouts

On the basis of our earlier work, a review of the literature on workforce

downsizing, and an analysis of specific provisions contained in 5 proposed

bills and 10 pieces of enacted legislation containing buyout provisions, we

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

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

May 14, 1996).

Page 7 GAO/GGD-97-124 Effective Buyout Usage
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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.

11GAO/GGD-96-63.

12Bumping 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.

13Both 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.

Page 8 GAO/GGD-97-124 Effective Buyout Usage
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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.

OMB Requirements

and OPM Guidance

Were Consistent With

Most of the Practices

Important for an

Effective Buyout

Program

Both OMB and OPM played important roles in the oversight and

implementation of the buyout authority. For example, as outlined in its

October 1996 bulletin sent to agency heads on planning and implementing

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

on agencies’ intended buyout usage. The strategic plans were to include

• an organization chart showing the anticipated structure of the agency once

the buyouts were completed,

• 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

14Once 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

Practice

OMB

bulletin/guidance OPM guidance P.L. 104-208

1. Identify the agency’s future operational, restructuring,

downsizing, or other goals and determine how buyouts will help

meet those goals.

X X

2. Consider, prior to making downsizing decisions, how

productivity and service levels will be maintained with fewer

employees.

X X

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 goals.

X X

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

financially or operationally advantageous to the government to do

so, such as employees in positions defined as “hard-to-fill,”

reemployed annuitants, etc.

X X X

9. Maximize current year savings by separating employees early in

the fiscal year, preferably in the first quarter.

X

10. Prohibit the reemployment of buyout recipients unless they first

repay the full amount of the buyout payment before the first day of

work.

X X X

11. Include provisions for agencies to contribute additional funds

to the government retirement fund to help pay for additional

retirements resulting from buyouts.

X X X

12. Limit the duration of the buyout program to as short a time

period as possible.

X

13. Establish a tracking system to report relevant data on buyout

recipients.

X X

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.

15Under 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.

16GAO/GGD-96-63.

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Selected Agencies’

Buyout Programs

Were Generally Better

Planned and

Implemented Than

Was Typically the

Case

Governmentwide

During the 1994 and

1995 Buyout Window

Based on our review of the buyout programs at the six agencies included

in our study, it appears that statutory and OMB requirements, as well as

OPM’s guidelines, led to better planning and implementation of these

agencies’ buyout programs than was true during the 1994 and 1995

non-DOD buyout window. During that earlier buyout opportunity, agencies

did not consistently manage their buyout programs in ways that produced

the greatest savings consistent with other organizational objectives.

Our Prior Work Concluded

That Earlier Buyouts Could

Have Been Better Planned

and Implemented

As we noted in our August 1996 study, which, among other things,

reported the results of our survey of 24 departments and agencies that

granted the most buyouts between January 1993 and September 1995,17

most agencies did not precede their buyout programs with adequate

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

17GAO/GGD-96-62.

18Non-DOD employees hired under a personal services contract are required to repay the separation

incentive to the agency from which they had received it.

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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

1997 Buyouts Improved

Compared to Earlier

Non-DOD Buyouts

Although we did not have the data to compare the results of agencies’

buyout programs authorized by P.L. 104-208 with those authorized by FWRA

in 1994 and 1995, available data suggest that the 6 agencies included in this

review managed their buyout programs more effectively than was typically

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

Selected Agencies

DOE VA

Buyout objectives To help meet assigned

staffing and funding targets

while minimizing the need

for RIFs.

To change the skill mix of key

components of the workforce;

reduce certain administrative,

upper level, and supervisory

positions; and alleviate the

impacts of a proposed RIF.

Buyout eligibility Decisions on workforce

reductions left to each

component, typically based

on program needs.

Varied with each component,

but included surplus

employees in consolidated

facilities, administrative and

clerical positions, and GS-14

and above.

Latest separation date 58 separations occurred

prior to Mar. 31, 1997. An

additional 40 employees

separated after March 31,

1997, where cost effective.

Jan. 3, 1997.

Number of positions

identified for elimination

before buy-out

128 at DOE, 30 at FERC. 1,687

Number of employees RIFed

as of May 1, 1997

78 40

Extent to which buyouts

avoided RIFs

Buyouts combined with

internal and external job

placements helped to

reduce the number of RIFs.

Also, FERC planned to

initiate a RIF in January

1997, but because 30

employees took buyouts,

this was unnecessary.

Buyouts mitigated a large

number of RIFs, but RIFs are

still expected.

Number of buyouts authorized 160 5,062

Number of buyouts approved

as of late spring 1997

68 DOE

30 FERC

4,376

Estimated net FY 1997

savings in millions of dollars

as reported in strategic plan

(costs are shown in

parentheses)a

$1.0 DOE

$0.30 FERC

$65.5

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

GSA IRS MBDA USIA

To reduce employment levels

while minimizing the need for a

RIF. Buyouts were offered

selectively to avoid skill

imbalances or adversely

affecting customers’ needs.

To help reorganize field

offices, achieve targeted

reductions at the national

office, and minimize the need

to conduct a RIF.

To minimize the need for RIFs

because of budget constraints,

buyouts were targeted toward

administrative support functions.

To mitigate the effects of a RIF

and to provide flexibility in

reducing employment in certain

Foreign Service occupations.

Generally excluded from

receiving buyouts were

employees in the Federal

Supply Service, Office of the

Inspector General, Office of

Governmentwide Policy,

regional Federal Protective

Service positions, and certain

positions in the Federal

Telecommunications Service.

Buyouts offered according to a

10-tiered priority system. First

priority went to employees in

noncontinuing positions not

eligible for optional retirement.

Persons affected by impending

RIF, including such positions as

program and policy,

administrative services, and

clerical and support.

Persons affected by proposed

RIF, including overstaffed

occupations, higher grade

levels, and supervisory

positions.

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

anticipated once agreement

was reached with the

employees union.

55 2

According to GSA, the 140

buyouts granted mitigated the

need for about as many RIFs.

According to IRS officials, had

it not been for the buyouts,

about 2,500 employees would

have had to be separated in a

RIF.

None. Buyouts mitigated about half of

the RIF impact.

Up to 223. 3,388 (although IRS estimated

that 1,326 offers would be

accepted).

30 100

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 

aBecause 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.

Conclusions Overall, the fiscal year 1997 buyout programs at the six agencies we

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.

Recommendations to

the Director, OMB

To achieve the full potential savings from buyouts consistent with other

organizational objectives, we recommend that the Director, OMB, require

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

19GAO/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.

Agency Comments

and Our Evaluation

We received written comments from the Secretary of Commerce; DOE’s

Assistant Secretary for Human Resources and Administration; VA’s Deputy

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 

Highlights of Selected

Agencies’ Fiscal Year

1997 Buyout

Programs

26

DOE Used Buyouts to Give Managers Flexibility in Reducing Its

Workforce

26

VA Used Buyouts to Help Facilitate Workforce Restructuring 27

GSA Used Buyouts to Help Avoid a RIF 28

IRS Used Buyouts to Help Reorganize Field Offices and Reduce

Headquarters Employment Levels

29

MBDA’s Buyout Program Targeted Specific Groups 30

USIA Used Buyouts to Manage Its Workforce Reductions 31

Appendix II 

Major Contributors to

This Report

32

Tables Table 1: Desirable Buyout Practices Were Generally Reflected in

Statutory, OMB, and OPM Requirements and Guidance

11

Table 2: Objectives and Results of Fiscal Year 1997 Buyout

Programs at Selected Agencies

16

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 Used Buyouts to

Give Managers

Flexibility in

Reducing Its

Workforce

DOE requested buyout authority to help it reach its funding targets and

allow it some flexibility in reducing the size of its workforce. Included in

DOE’s strategic plan was a provision for offering 21 buyouts to employees

in 4 organizations funded by the Departmental Administration Account

(employees in other units could take buyouts as long as they were shown

to be cost effective). RIF notices had been sent to 128 employees on

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 Used Buyouts to

Help Facilitate

Workforce

Restructuring

VA requested authority to offer as many as 5,062 buyouts to help it convert

to a primary/managed care model of health care delivery, integrate

facilities, reengineer business processes, and reduce the number of

management control positions while minimizing the need for RIF

separations. RIF plans had already been approved for 1,687 employees at 19

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.

VBA paid 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.

GSA Used Buyouts to

Help Avoid a RIF

According to GSA’s strategic plan, the President’s Fiscal Year 1997 budget

called on GSA to reduce its employment levels by 337 full-time positions.

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.

IRS Used Buyouts to

Help Reorganize Field

Offices and Reduce

Headquarters

Employment Levels

The objectives of the IRS buyout program were to complete its field office

reorganization, selectively downsize its headquarters, and reduce or

eliminate the need to conduct a RIF. Facing funding reductions that caused

it to accelerate the pace of its reorganization efforts, IRS identified 3,388

positions for realignment or elimination. About 70 percent of these

positions were in field offices.

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.

IRS supported 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’s Buyout

Program Targeted

Specific Groups

MBDA was forced to reduce its personnel expenses following severe budget

cuts that reduced MBDA’s funding from $44 million in fiscal year 1995 to

$28 million in fiscal year 1997, a decline of about 36 percent. To that end, it

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 Used Buyouts to

Manage Its Workforce

Reductions

USIA’s ongoing reinvention efforts, combined with funding restrictions, led

the agency to identify 80 positions for elimination. To minimize the impact

of the impending RIFs, USIA offered up to 100 buyouts. The buyouts were to

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

General Government

Division

Steven J. Wozny, Assistant Director

Robert Goldenkoff, Evaluator-in-Charge

Denver Office Thomas R. Kingham, Senior Evaluator

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