FEDERAL

WORKFORCE

Payroll and Human

Capital Changes

During Downsizing

United States General Accounting Office

GAO Report to Congressional Requesters

August 1999

GAO/GGD-99-57

United States

General Accounting Office

Washington, D.C. 20548

Page 1 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

GAO

B-280545

August 13, 1999

The Honorable Fred Thompson

Chairman, Committee on

Governmental Affairs

United States Senate

The Honorable Thad Cochran

Chairman, Subcommittee on International

Security, Proliferation and Federal Services

Committee on Governmental Affairs

United States Senate

This report, prepared at your request, provides information on the factors causing the federal

payroll to increase while the number of federal employees decreased during downsizing and

summarizes our prior studies on the impact of downsizing on human capital. Specifically, the

report identifies the extent to which each major factor contributed to the increase in the

federal payroll during fiscal years 1993 through 1997. The factors relate primarily to the

current system for compensating federal employees, a prominent topic in the Office of

Personnel Management’s strategic plan and an area that will need additional consideration as

the government evaluates the guiding principles and best practices for addressing a wide

range of federal human capital issues. In this regard, we believe a strong link is needed

between human capital planning and agencies’ strategic and programmatic approaches to

accomplishing their missions. Accordingly, in this report we are recommending that

Congress, in considering buyout legislation, continue to require agencies to prepare and

submit strategic buyout plans for congressional review as a prerequisite for implementing

buyout authority and to implement downsizing consistent with the results of their planning

efforts.

As agreed, unless you announce the contents of this report earlier, we plan no further

distribution until 30 days from the date of this letter. At that time, we will send copies of this

report to Senator Joseph I. Lieberman, Ranking Minority Member, Senate Committee on

Governmental Affairs; Senator Daniel Akaka, Ranking Minority Member, Subcommittee on

International Security, Proliferation and Federal Services, Senate Committee on

Governmental Affairs; Representative Dan Burton, Chairman, and Representative Henry A.

Waxman, Ranking Minority Member, House Committee on Government Reform; and

Representative Joe Scarborough, Chairman, and Representative Elijah E. Cummings, Ranking

Minority Member, Subcommittee on Civil Service, House Committee on Government Reform.

We will also send copies to the Honorable Janice R. Lachance, Director, Office of Personnel

Management. Copies will be made available to others upon request.
B-280545

Page 2 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Please call me on (202) 512-2700 if you have any questions concerning this report. GAO

contacts and major contributors to this report are acknowledged in appendix III.

Nancy R. Kingsbury

Acting Assistant

 Comptroller General
Page 3 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing
Executive Summary

Page 4 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Since 1991, Congress and the Bush and Clinton administrations have been

reducing federal employment levels as a means of restructuring the

workforce and reducing federal costs and budget deficits. The Department

of Defense (DOD) and non-DOD agencies have been using pay separation

incentives—commonly known as buyouts—to induce employees to

voluntarily leave federal service. During fiscal years 1993 through 1997, the

federal civilian workforce (excluding the Postal Service) was reduced by

almost 300,000 employees, or 13.8 percent. At the same time, the federal

civilian payroll—basic pay, premium pay, and benefits—increased by 9.3

percent, to $102.4 billion. In addition, in analyzing this reduction in the

federal workforce, GAO and others have raised concerns about the

implications of downsizing on the employees—a human capital issue.

In view of the significance of these issues, the Chairmen of the Senate

Committee on Governmental Affairs and its Subcommittee on

International Security, Proliferation and Federal Services asked GAO to

determine why, during a period of downsizing, the federal payroll

increased while the number of federal employees decreased. In response,

GAO analyzed data from the Office of Personnel Management’s (OPM)

Central Personnel Data File (CPDF) of federal employees and reports on

work years and personnel costs. GAO identified the major factors and the

extent to which each contributed to the increase in the federal payroll

during fiscal years 1993 through 1997, and interviewed officials at selected

agencies to determine some of the reasons why the cost of these factors

increased. GAO also agreed to summarize prior GAO studies on the impact

of downsizing on human capital.

Between the beginning of fiscal year 1993 and the end of fiscal year 1997,

the total federal payroll grew by $8.7 billion (9.3 percent) to $102.4 billion,

while the size of the federal workforce decreased from 2.2 million

employees to 1.9 million.1

 In real terms, however, overall federal payroll

costs decreased because, in 1997 constant dollars, the payroll declined by

$2.4 billion during the 5-year downsizing period.2

Because the decrease in

the number of employees for the most part offset actual aggregate payroll

cost increases for those employees remaining on the payroll, GAO

calculated payroll costs for a constant workforce of 1.9 million employees

over the 5-year period to isolate the payroll cost increases and their

 

1

 The numbers represent the number of full-time equivalent employees or work years, which generally

consist of one or more employed individuals who collectively complete 2,080 work hours in a given

year.

2

 GAO normalized dollar amounts to 1997 inflation adjusted or constant dollars for overall payroll

comparisons. However, GAO primarily used nominal dollars in the analyses because it allowed us to

illustrate all the causes of the payroll increase, some of which were related to inflation and some not.

Purpose

Results in Brief
Executive Summary

Page 5 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

causes. On this basis, GAO estimated that, between fiscal years 1993 and

1997, payroll costs in nominal dollars increased about $11,600 per

employee and approximately $21.6 billion in total.3

 For comparison, in

terms of 1997 constant dollars, this payroll increase was approximately

$6,460 per employee and $12.0 billion for 1.9 million employees.

The increased payroll costs were attributable to several causes, but the

predominant cause was the annual pay comparability adjustment that is

intended to keep federal pay competitive with that of nonfederal

employers. (See figure 1.) The cost of employee benefits and changes in

the characteristics of the federal workforce also played a major role in

increasing the overall federal payroll cost. Employee benefits increased

due primarily to (1) incentives paid to separating employees, (2) the

increasing proportion of employees in the Federal Employees’ Retirement

System (FERS) and the increasing cost of the government’s required

match for FERS employees’ Thrift Savings Plan (TSP) contributions, and

(3) increases in health insurance costs.

Changes in the characteristics of the federal workforce that increased

payroll costs included (1) career step increases based on tenure and

satisfactory performance, (2) promotions, and (3) pay increases due to

high quality performance. The payroll cost increases that resulted from

these factors, however, were partially offset by the limited hiring of staff,

at grades below the governmentwide average, whose lower pay levels

helped dampen the overall average payroll and grade increases. (See figure

1.)

 

3

 GAO did not have the data necessary to determine the exact payroll costs for the 1.9 million

employees or for the net reduction of 300,000 employees during fiscal years 1993 through 1997.

Therefore, GAO used the difference between the average payroll cost per employee for 2.2 million

employees in 1993 and 1.9 million employees in 1997 to approximate a $21.6 billion payroll increase for

a constant workforce of 1.9 million employees.
Executive Summary

Page 6 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Source: GAO calculations based on OPM data.

The various factors that caused the payroll increase were not unique to the

downsizing period. The most significant factor contributing to the

increased payroll, the annual pay comparability adjustment, increased at a

somewhat lower rate during downsizing than in the preceding 5-year

period. Benefit cost increases, another significant contributor to payroll

cost increases during downsizing, increased about 29 percent less than in

the 5-year period before downsizing.

Career step increases, promotions, performance pay, and hiring and

separation patterns all contributed to changes in the governmentwide

averages for employees’ grade and payroll cost from fiscal years 1993

through 1997. These changes in the characteristics of the workforce

resulted in an average grade level increase of about one-half grade, from

the beginning to about the mid-point of GS-9. This increase of about onehalf grade during downsizing was similar to the average grade increase in

the 5 years before downsizing.

The separation and hiring practices employed by the agencies during

downsizing also contributed to substantially greater increases in

Figure 1: Percentage Effect of Various

Factors Contributing to Federal Payroll

Increase, Fiscal Years 1993-1997
Executive Summary

Page 7 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

employees’ average age and service time during downsizing than occurred

during the previous 5-year period.

The implications of changes during downsizing on the government’s

human capital will require continuing attention. GAO reviews have found,

for example, that a lack of adequate strategic and workforce planning

during initial rounds of downsizing by some agencies may have affected

their ability to achieve organizational missions. Some agencies have

reported that downsizing in general led to such negative effects as the loss

of institutional memory and an increase in work backlogs.

In a study of six agencies’ experiences in the later stages of the downsizing

effort, GAO found that most had planned and implemented buyout

programs more effectively than had agencies during the initial rounds of

downsizing and had generally linked buyouts to achieving specific

organizational objectives. This increase in buyout program effectiveness

was due in part to a statutory requirement (P.L. 104-208) that agencies

prepare and submit strategic buyout plans for congressional review prior

to implementing their buyout authority. Most of the recent and pending

legislation to provide buyout authorities requires specified agencies to

prepare and submit strategic buyout plans for congressional review prior

to implementing buyouts. GAO is recommending that Congress continue

these requirements.

At the end of fiscal year 1997, the federal workforce was composed of

about 1.9 million employees, excluding postal employees. About 1.6 million

employees were in white-collar positions, most of which are covered by

the General Schedule (GS). The Federal Wage System covered the

remaining trade, craft, and labor employees. GS and wage system

employees have separate pay schedules consisting of individual grades and

steps within grades.

The federal payroll has three primary components—basic pay, premium

pay, and the cost of benefits provided to employees. Basic pay consists of

salaries and wages paid directly to employees for duties performed during

the regular workweek. Premium pay is supplemental pay for overtime

work in excess of the regular workweek, which is generally an 8-hour day

and 5-day week, and for work at night and on Sundays and holidays, as

well as for availability duty. Benefit costs include health and life insurance

premiums, retirement and Thrift Savings Plan contributions, and

separation pay.

Background
Executive Summary

Page 8 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Pay adjustments for the federal workforce have traditionally occurred on

an annual basis. Under the Federal Employees Pay Comparability Act of

1990, pay adjustments for the majority of the workforce are to consist of

two components: (1) a nationwide basic pay increase linked to the

Employment Cost Index (ECI) and (2) individual locality pay adjustments

that apply to specific geographical areas where nonfederal pay exceeds

federal pay by more than 5 percent. Beginning in 1994, the locality pay

component of the pay adjustment was to be phased in over a 9-year period

to reduce the then estimated pay gap of about 28 percent. A different

statutory pay system, based on comparability with local prevailing wage

rates, applies to wage system employees.

Between the beginning of fiscal year 1993 and the end of fiscal year 1997,

the total federal payroll grew by $8.7 billion (9.3 percent) to $102.4 billion,

while the size of the federal workforce decreased from 2.2 million

employees to 1.9 million. In real terms, however, overall federal payroll

costs decreased because in 1997 constant dollars the payroll declined by

$2.4 billion during the 5-year downsizing period.

The payroll cost could have been about 16 percent higher in nominal

dollars had there been no employment reductions and had the average pay

per employee increased annually at the rate experienced during

downsizing. However, this estimate cannot be used as a downsizing

savings estimate because it does not consider all downsizing costs, such as

the amount of separation payments and payments to contractors to

provide services previously provided by downsized employees. For

example, a prior GAO review found that 5 of the 24 agencies reviewed

were contracting for work previously done by employees who had taken

buyouts, to compensate for their reduced workforces.

Because the decrease in the number of employees offset actual aggregate

payroll cost increases for those employees remaining on the payroll, GAO

calculated payroll costs for a constant workforce of 1.9 million employees

over the 5-year period to isolate the payroll cost increases and their

causes. On this basis, GAO estimated that, between fiscal years 1993 and

1997, payroll costs increased about $11,600 and $6,460 per employee in

nominal and constant dollars, respectively, and approximately $21.6 billion

in total nominal dollars. In terms of 1997 constant dollars, the total payroll

increase was $12.0 billion.

Principal Findings

Overview of Federal Payroll

Changes
Executive Summary

Page 9 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

The increased payroll costs were attributable primarily to the annual pay

comparability adjustments that the President recommended and that were

agreed to by Congress. These adjustments are intended to keep federal pay

competitive with that of nonfederal employers. Other factors that directly

increased the compensation of federal employees were increases in the

costs of benefits, premium pay, promotions and other performance-based

pay increases, and tenure-based career step increases. The latter three payrelated factors, offset to some extent by limited hiring at lower grade

levels, pushed the average grade level, and hence pay, of federal

employees higher during the downsizing period than they were before.

The annual pay comparability adjustments were responsible for an

estimated 58.9 percent, or $12.7 billion, of the estimated overall increase in

federal payroll costs for a constant workforce of 1.9 million employees.

This estimate includes the effect of comparability adjustments not only on

the basic pay of federal employees, but also on the increased costs of

certain federal pay and benefits, like retirement benefits, whose costs are

set as a percentage of employees’ basic pay.

Increases in basic pay totaled about $10.1 billion due to annual

comparability adjustments, and associated increases in premium pay and

benefits added about $2.6 billion to this total. Overall, the comparability

adjustments amounted to about a 17-percent increase in employees’ pay

and benefits.

Comparability adjustments were approximately 19 percent during the

preceding 5-year period. Nonfederal employers increased their employees’

pay and benefits approximately 16 percent, as measured by the ECI, during

the federal downsizing period. In most years before and during

downsizing, the President and Congress acted to reduce the adjustments

that otherwise would have been provided under the statutory pay

formulas. During the 5-year period, for example, the combined nationwide

and locality pay adjustments were about 9 percentage points less than the

24.5 percent adjustment that was calculated, but not fully provided, under

the pay formulas.

Some of the benefits that are calculated on the basis of employees’ basic

pay increased more than the amount that was due to basic pay increases.

In addition, other benefits, such as health insurance premiums, are not

calculated on the basis of employees’ basic pay, and some of these benefits

increased in cost during fiscal years 1993 through 1997. In total, increases

in the cost of benefits, exclusive of those attributable to increases in

Annual Pay Comparability

Adjustments Were the Primary

Cause of Increased Payroll Costs

Benefits Cost Increases

Accounted for Over 10 Percent

of the Payroll Cost Increase
Executive Summary

Page 10 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

employees’ basic pay, accounted for an estimated 13.6 percent, or $2.9

billion, of the overall increase in federal payroll costs.

The average annual increase in benefit costs per employee during

downsizing was about 29 percent less than the increase in benefit costs

during the previous 5-year period. According to OPM officials, the primary

reasons for the increases in benefit costs that did occur were agencies’

costs for the buyouts offered to encourage employees to leave, matching

contributions to the Thrift Savings Plan that agencies are required to make

for the increasing number of employees’ in the Federal Employees

Retirement System (FERS), and the continuing increase in the cost of

health insurance premiums of which agencies pay a portion.

Premium pay, exclusive of the effect of comparability and other pay

increases, increased during fiscal years 1993 through 1997, accounting for

about 0.3 percent, or $0.1 billion, of the overall increase in federal payroll

costs. This increase in the average amount of premium pay during

downsizing was about 91 percent less than during the previous 5-year

period. Agencies cited overtime payments as the primary reason for the

premium pay increases.

Career step increases, promotions, performance pay, and the combined

effect of hiring and separation patterns together resulted in an overall

payroll increase and an increase in the workforce’s average grade. The

combination of the pay actions and the hiring and separation patterns

increased the average employee’s payroll cost by about $3,180 and the

total workforce’s payroll by about 29 percent, or $5.9 billion of the $21.6

billion increase for a constant workforce of 1.9 million employees during

fiscal years 1993 through 1997. These changes in the characteristics of the

workforce also resulted in an increase in the average grade level from GS9.1 to GS-9.5. This almost one-half grade increase was similar to the rate of

increase during the previous 5-year period.4

The agencies’ separation and hiring practices used during downsizing also

contributed to 1.7 and 1.6 year increases in employees’ average age and

service time, respectively, during downsizing. These rates of increase for

average age and length of service were 55 and 100 percent greater,

 

4

The average grade levels cannot be used to compute the dollar impact on the federal payroll because

the composition of the average may vary depending on the step levels of the employees, and even

higher grade and step levels do not necessarily equate to higher pay. For example, if an average grade

of GS-9, step 1, was composed of a GS-8, step 8, and a GS-9, step 4, the average pay of the two

employees would actually be much higher than GS-9, step 1, pay since both GS-8, step 8, and a GS-9,

step 4, are paid at rates higher than GS-9, step 1.

Premium Pay Increases Were

Minimal

Pay Actions, Combined With

Changes in Workforce

Composition, Contributed to

Over One-Fourth of the Payroll

Increase
Executive Summary

Page 11 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

respectively, than the rates that occurred during the previous 5-year

period. This aging of the workforce could pose problems if knowledgeable

and experienced workers begin to retire in greater numbers.

The administration’s goal of increasing the ratio of staff to supervisors to

15 to 1 during downsizing was only partially met, as the ratio increased

from 6.6 to 7.7 employees per supervisor. Principally because most of the

former supervisors remained with the government at the same grade and

pay, the change in the supervisory ratio had little impact on the federal

payroll.

When federal agencies’ allocate operating resources, the largest share

often is devoted to their workforces. Thus, agencies’ effective management

of their human capital is critical to both accomplishment of their missions

and to efficient, effective, and economical agency operations. Agencies’

ability to provide quality service while downsizing its human capital can be

an extremely challenging effort without adequate planning.

GAO reviews have found that a lack of adequate strategic and workforce

planning during downsizing by some agencies may have affected their

ability to provide quality service. Also, the use of agencywide hiring freezes

made the replacement of employees with the types of skills needed to

perform agencies’ missions problematic. Some agencies acknowledged

that the loss of critical employees could have been avoided had the

agencies done meaningful planning and granted their buyouts consistent

with those plans. Agencies have also reported that downsizing in general

led to such negative effects as the loss of institutional memory and an

increase in work backlogs.

A more recent GAO study of six agencies found that most of these

agencies had more effectively planned and implemented buyout programs

after Congress began to require that strategic buyout plans be submitted to

Congress. These agencies also had generally linked buyouts to achieving

specific organizational objectives. These agencies were required by statute

(P.L. 104-208) to submit these plans to the appropriate congressional

appropriations and oversight committees prior to implementing their

buyout authority. The plans were required to outline the intended use of

the authority, including a description of how the agency would operate

without the eliminated positions and functions. Recent and pending

legislation to provide buyout authorities generally, but not always, require

the agencies to prepare and submit strategic buyout plans for

congressional review prior to implementing buyouts.

Impact of Downsizing on

Human Capital
Executive Summary

Page 12 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Strategic buyout plans are especially important given the general lack of

attention to human capital issues in federal agencies’ annual performance

plans that are prepared under the Government Performance and Results

Act of 1993. In this regard, we recently reported that most of the fiscal year

2000 annual performance plans do not sufficiently address how the

agencies will use their human capital to achieve results.5

 This general lack

of attention to human capital issues is a very serious omission because

only when the right employees are on board and provided the training,

tools, structure, incentives, and accountability to work effectively is

organizational success possible.

Human capital issues will require continuing attention to minimize

possible adverse effects on government performance. In this regard, GAO

continues to believe that a strong link is needed between human capital

planning and agencies’ strategic and programmatic approaches to

accomplishing their missions.

To ensure the most cost-effective use of any future buyouts and to help

mitigate the adverse effects that can result from poorly planned

downsizing, GAO recommends that Congress, in considering buyout

legislation, continue to require agencies to prepare strategic buyout plans

as a prerequisite for implementing buyout authority and to implement

downsizing consistent with the results of their planning efforts. Similar to

what was done for buyouts authorized by P.L. 104-208, Congress should

also require agencies to submit their plans to appropriate congressional

committees prior to implementing their buyout authority.

DOD and OPM provided written comments on a draft of this report. Each

agency concurred with the report’s findings. OPM’s additional comments

are included at the ends of chapters 2, 3, and 4. Subsequent to obtaining

these agencies’ comments, GAO revised the report to provide additional

context on the impact of downsizing on human capital. Since comments

had been previously requested from the appropriate agencies regarding the

human capital issues discussed in its prior reports, GAO did not request

additional comments.

 5

 Managing for Results: Opportunities for Continued Improvements in Agencies’ Performance Plans

(GAO/GGD/AIMD-99-215, July 20, 1999).

Recommendations to

Congress

Agency Comments
Page 13 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing
Page 14 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Contents

Executive Summary 4

18

Origins of Federal Downsizing 18

Composition of the Federal Workforce 19

Components of the Federal Payroll 20

Employee Pay Adjustments 20

Objectives, Scope, and Methodology 22

Chapter 1

Introduction

27

Payroll Increases for Remaining Employees Were Larger

Than Payroll Decreases Resulting From Downsizing

29

Factors that Increased the Federal Payroll During

Downsizing

30

Impact of Downsizing on Human Capital 31

Conclusions 32

Recommendations to Congress 32

Agency Comments 33

Chapter 2

Impact of Downsizing

on Federal Payroll and

Human Capital

34

Annual Pay Comparability Adjustments Were the Major

Cause of the Increases in Payroll Costs

34

Benefits Cost Increases Accounted for Over 13 Percent of

the Payroll Cost Increase

35

Premium Pay Increases Were Minimal 37

Agency Comments 39

Chapter 3

Annual Pay

Comparability

Adjustments Were the

Primary Cause of

Increased Payroll

Costs

40

Impact of Career Steps, Promotions, and Performance

Pay

40

Impact of Hiring and Separation Patterns 43

Chapter 4

Career Steps, Other

Pay Actions, and

Workforce

Composition Changes

Contributed About

One-Fourth of the

Payroll Increase

Decrease in Number of Supervisors and Managers Had

Limited Payroll Impact

47
Contents

Page 15 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Agency Comments 49

Appendix I: Comparison of Benefit Costs and Premium

Pays per Employee for the 5-Year Periods Before and

During Downsizing

50

Appendix II: Comments From OPM 52

Appendix III: Major Contributors to This Report 53

Appendixes

Table 2.1: Factors Causing Increased Cost per Employee

and Federal Payroll to Change, Fiscal Years 1993

Through 1997

31

Table 3.1: Changes in Cost of Benefits per Employee and

Governmentwide During Downsizing

36

Table 3.2: Changes in Cost of Premium Pay per

Employee and Governmentwide During Downsizing

37

Table 4.1: Number and Amount of Personnel Actions

Affecting Payroll During Downsizing Period

41

Table 4.2: Proportion of Employees in, Separated From,

and Newly Hired Into Occupational Categories During

Downsizing

46

Table 4.3: Effect of Acquiring and Separating or

Reclassifying Supervisors and Managers

Governmentwide During Downsizing

49

Table I.1: Changes in Annual Average Cost of Benefits per

Employee During Downsizing Due to Changes in

Benefits and Comparability and Other Pay Actions

50

Table I.2: Changes in Annual Average Cost of Premium

Pays per Employee During Downsizing Due to Changes

in Premium Pays and Comparability and Other Pay

Actions

51

Tables

Figure 1: Percentage Effect of Various Factors

Contributing to Federal Payroll Increase, Fiscal Years

1993-1997

6

Figure 2.1: Percentage Increase Contributed by Various

Factors to Federal Payroll Costs, Fiscal Years 1993-

1997

28

Figure 2.2: Actual Versus Projected Fiscal Year 1993-1997

Changes in the Federal Payroll Amounts

30

Figures

Figure 4.1: Annualized Average Number of Career Step

Increases, Promotions, and Performance Pay Increases

per 1,000 Employees During Downsizing Compared

With the 5-year Period Before Downsizing

41
Contents

Page 16 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Figure 4.2: Dollar Value of Career Step Increases,

Promotions, and Performance Pay Increases per Pay

Action During Downsizing Compared With the 5-year

Period Before Downsizing

42

Abbreviations

COLA cost of living adjustment

CPDF Central Personnel Data File

DOD Department of Defense

ECI Employment Cost Index

FAA Federal Aviation Administration

FEPCA Federal Employees Pay Comparability Act of 1990

FERS Federal Employees Retirement System

FTE full-time equivalent

FWS Federal Wage System

GS General Schedule

OPM Office of Personnel Management

SSA Social Security Administration
Page 17 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing
Chapter 1

Introduction

Page 18 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Since 1991, Congress and the Bush and Clinton administrations have been

reducing federal employment levels as a means of reducing federal costs

and controlling deficits. For much of the period since January 1, 1993,

Department of Defense (DOD), and since March 30, 1994, non-DOD,

agencies have been paying separation incentives—commonly known as

buyouts—to induce employees to voluntarily leave federal service.

However, the federal payroll increased by $8.7 billion, or 9.3 percent, from

$93.7 billion to $102.4 billion, while the federal civilian workforce was

reduced by about 297,000 employees, or 13.8 percent, to 1.9 million

employees during fiscal years 1993 through 1997. To determine why, we

identified and analyzed the major factors that resulted in an increased

federal payroll at the end of this period of downsizing. We also

summarized our prior studies on the impact of downsizing on human

capital.

The administration and Congress began to reduce the number of

employees in DOD agencies in 1991—primarily through military base

closings—to reduce the federal payroll. Beginning in 1993, Congress and

the administration, through a series of legislative acts and executive

orders, established authorities and goals for reducing federal staffing

levels governmentwide. In this regard, three key pieces of legislation were

the National Defense Authorization Act for Fiscal Year 1993; the Federal

Workforce Restructuring Act of 1994; and section 663 of the Treasury,

Postal Service, and General Government Appropriations Act of 1997, each

of which authorized agencies to pay separation incentives—commonly

known as buyouts—of as much as $25,000 to eligible employees as

inducements to leave federal service voluntarily. Buyouts provided

agencies a tool to avoid or reduce the need for reductions-in-force.

The National Defense Authorization Act authorized buyouts for civilian

employees at DOD agencies from January 1, 1993, through September 30,

1997. This closing date was later extended to September 30, 1999.1

 The

Federal Workforce Restructuring Act of 1994, in addition to authorizing

buyouts, mandated governmentwide reductions of 272,900 full-time

equivalent (FTE) positions through fiscal year 1999.2

 The Workforce

Restructuring Act generally gave non-DOD agencies authority to offer

buyouts from March 30, 1994, through March 31, 1995. The 1997

 

1

P.L. 102-484 authorized DOD buyouts through September 30, 1997; P.L. 103-337 extended DOD buyouts

through September 30, 1999.

2

According to OMB guidance, an FTE or work year generally consists of one or more employed

individuals who collectively complete 2,080 work hours in a given year. Therefore, either one full-time

employee or two half-time employees equal one FTE or work year. These hours include straight-time

hours only and exclude overtime and holiday hours.

Origins of Federal

Downsizing
Chapter 1

Introduction

Page 19 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

appropriations act gave most non-DOD agencies the authority to offer

buyouts from October 1, 1996, through December 30, 1997.

More recent legislation has extended the authority for offering buyouts for

DOD agencies to September 30, 2001, and for some non-DOD agencies

until September 30, 1999, with some specific agencies, such as the Internal

Revenue Service, having authority until as late as January 1, 2003.

The federal workforce was composed of about 1.9 million FTE non-postal

employees at the end of fiscal year 1997. Most “white-collar” workers,

about 1.6 million, are covered for pay and classification purposes by the

General Schedule (GS), which consists of 15 grades, each broadly defined

in law in terms of difficulty and responsibility of the work and the

qualifications required for its performance. Other white-collar employees

not covered under the GS system include the Foreign Service, certain

Veterans Health Administration medical personnel, and the Senior

Executive Service, which includes most employees above the GS-15 level.

The Office of Personnel Management (OPM) categorizes each white-collar

occupation on the basis of the general subject matter of work, level of

difficulty or responsibility, and educational requirements. A description of

the five categories follows.

• Professional occupations require incumbents to use discretion and

judgment in applying knowledge acquired through education or training

equivalent to a bachelor’s degree in a specialized field. Professional

occupations include statistician, accountant, and architect.

• Administrative occupations involve the exercise of analytical ability,

judgment, and the application of a substantial body of knowledge of

administrative or management principles and practices. While these

occupations do not require specialized educational majors, they do involve

the type of skills typically gained through a general college education or

progressively responsible work. These occupations include air traffic

controller, criminal investigator, and financial analyst.

• Technical occupations consist of nonroutine work that is learned on-thejob or from specialized training less than that represented by college

graduation, to support professional or administrative fields. Technical

occupations include practical nurse, economics assistant, and engineering

technician.

• Clerical occupations require incumbents to do structured work according

to established policies, which are learned through training or work

experience, to support office operations. Clerical occupations include

secretary, clerk-typist, and customs aide.

Composition of the

Federal Workforce
Chapter 1

Introduction

Page 20 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

• Other white-collar occupations include those miscellaneous occupations

that are not included in one of the four other categories. Other white-collar

occupations include corrections officers and police.

Professional and administrative occupations generally have higher entry

levels and average grade levels than do clerical occupations.

As of September 30, 1997, federal blue-collar employees numbered about

250,000. They are covered by the Federal Wage System (FWS), the major

pay system covering trade, craft, and labor occupations. These

occupations include machine tool work, printing, and plumbing and

pipefitting. Wage schedules consist of 15 grades, covering most

nonsupervisory employees. Schedules for supervisors and leaders are

based on the nonsupervisory schedules, but are separate from them.

The federal payroll has three primary components—basic pay, premium

pay, and the cost of benefits provided to the employees. Basic pay consists

of the salaries and wages paid directly to employees for duties performed

during the employees’ regular workweek. Basic pay also includes amounts

paid for annual and sick leave. Premium pay is supplemental pay, such as

overtime, for work in excess of the regular workweek, which is generally

an 8-hour day and a 5-day week that does not include Sunday. Benefits

provided to employees at a cost to the government include agencies’

shares of health and life insurance premiums and retirement contributions.

The benefits cost category also includes severance pay or buyout

payments made to employees leaving the federal government.

Most federal employees receive annual pay comparability adjustments

under the Federal Employees Pay Comparability Act of 1990 (FEPCA).

FEPCA introduced a new annual pay-setting process that, beginning in

1994, was to gradually raise federal pay rates to within 5 percent of

nonfederal rates by the year 2002.

Annual pay comparability adjustments consist of two components: a single

nationwide basic pay schedule percentage adjustment and varying

adjustments in specific localities. The nationwide adjustment is based on

the Employment Cost Index (ECI), an index prepared by the Bureau of

Labor Statistics that measures the change in nonfederal employers’ wages

and salaries. The ECI adjustment generally applies to GS—that is, most—

federal employees; Foreign Service pay schedules; and pay schedules

established under title 38 for certain Veterans Health Administration

employees. It may also be applied to other pay systems, such as the Senior

Executive Service. The locality pay adjustments apply to specific

Components of the

Federal Payroll

Employee Pay

Adjustments
Chapter 1

Introduction

Page 21 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

geographical areas within the continental United States in which surveyed

nonfederal pay rates exceed GS pay rates by 5 percent. As with the ECI

adjustment, the locality pay adjustment may also be applied to other pay

systems up to established statutory pay ceilings.

The locality and nationwide pay comparability adjustments were intended

to deal with the pay gap as well as any annual increases in nonfederal pay

rates. At the time of enactment, the estimated pay gap was about 28

percent, and FEPCA required that 20 percent of the gap be closed in 1994,

with locality pay adjustments each year thereafter until the pay gap was

reduced to 5 percent.3

 FEPCA also authorizes the President to propose

lower alternative pay comparability adjustments under certain specified

conditions. Since 1994, either the adjustment based on the ECI or the

locality pay surveys have been limited by alternative adjustments by the

President and Congress.

Employees’ pay also varies at a given grade level, depending on which of

10 steps the employee occupies within that grade. Each higher step

increases the employee’s rate of basic pay within that grade. Employees’

advancement to the next step within a grade (career step increases) is to

be based on performance at an acceptable level of competence and

established waiting periods for the steps. The waiting periods for steps 1

through 4, 5 through 7, and 8 through 10 are 52, 104, and 156 weeks,

respectively. Employees demonstrating “high quality performance” may

advance more rapidly through the steps by being granted additional

performance-based step increases (quality step increases). An employee

may receive only one such increase during any 52-week period.

Pay under FWS is to be based on what private industry is paying for the

same kind of work in local wage areas. Federal blue-collar employees are

to be paid the full prevailing rate at step 2 of their grade. At step 5, the

highest step, they may be paid 12 percent above the prevailing rate. Since

fiscal year 1979, separate legislation has limited or delayed annual FWS

wage adjustments.

Blue-collar employees also receive career step increases and, based on

creditable service, may advance to step 5 in about 6 years. However, there

are no provisions for their receiving quality step increases.

 

3

Prior to FEPCA, employees’ pay was adjusted annually in accordance with the Federal Pay

Comparability Act of 1970. The 1970 Act also had the principle of pay comparability, requiring annual

adjustments to make federal pay rates comparable with private sector pay rates for the same levels of

work.
Chapter 1

Introduction

Page 22 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

The Chairmen of the Senate Committee on Governmental Affairs and its

Subcommittee on International Security, Proliferation and Federal

Services asked us to analyze changes in the federal workforce’s pay and

composition since passage of the National Defense Authorization Act for

Fiscal Year 1993 and the Federal Workforce Restructuring Act of 1994, to

determine why the federal payroll increased while the number of federal

employees was decreasing. Our specific objectives were to determine

• to what extent and for what reasons the amounts of basic pay, costs of

benefits, and premium pay changed during downsizing, and

• how, and to the extent possible why, grade and pay levels, the

proportion of employees in occupations, and other demographics of the

workforce changed in DOD and non-DOD agencies during downsizing

and what impact these changes had on the federal payroll.

We also answered the question of to what extent the number and salaries

of supervisors and managers and their ratio to employees changed during

downsizing and how those changes affected the payroll. In addition, we

summarized our prior findings on human capital issues related to

downsizing.

To determine the extent to which and for what reasons basic pay, benefits

costs, and premium pay changed during downsizing, we identified the

factors that affected these payroll costs—annual comparability

adjustments, changes in the grades and pay levels of federal employees,

and changes in agencies’ use of benefits and premium pay. We obtained

data on pay comparability adjustments from reports prepared by the

President’s Pay Agent4

 and OPM’s annual reports entitled Pay Structure of

the Federal Civil Service. We obtained data on the number of employees,

basic pay, benefits costs, and premium pay and the average grade of fulltime federal employees from OPM’s annual reports entitled Work Years

and Personnel Costs and The Fact Book: Federal Civilian Workforce

Statistics.

We used the difference between the average payroll cost per employee for

the 2.2 million employees at the beginning of fiscal year 1993 and for the

1.9 million employees at the end of fiscal year 1997 to approximate a $21.6

billion payroll increase for a constant workforce of 1.9 million employees.

We did not have the data necessary to determine the exact payroll cost for

 

4

The President’s Pay Agent is composed of the Secretary of Labor and the Directors of OPM and the

Office of Management and Budget.

Objectives, Scope, and

Methodology
Chapter 1

Introduction

Page 23 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

the employees who separated during fiscal years 1993 through 1997.

However, we were able to determine that the average payroll cost per

employee for the 2.2 million employees included subsequently separated

employees, who had lower average payroll costs than the remaining

employees.

We calculated the impact of annual comparability adjustments on the basic

pay portion of the federal payroll and on the average employee’s basic pay

during fiscal years 1988 through 1997. We used a single average for each of

the years to represent the nationwide and locality pay adjustments. To

facilitate our analysis, we applied these increases to the entire payroll for

all federal civilian employees, including blue-collar employees, who

received pay adjustments under another system.5

 After determining the

amount that basic pay increased as a result of annual comparability

adjustments, we calculated the amounts that basic pay increased each year

due to other pay actions and separation and hiring trends that resulted in

changes in employees’ grade and pay levels. We then determined the

proportionate relationship each year between the impact on basic pay of

comparability adjustments and the impact on basic pay of other pay

actions and of separation and hiring trends.

To calculate the effect comparability adjustments and other pay actions

had on the costs of benefits and premium pay, we analyzed the extent to

which the cost of each benefit and premium pay changed during fiscal

years 1988 through 1997 due to basic pay increases--as distinct from

changes in usage of the benefits and premium pays, which may also

increase their costs. Since most benefits and premium pays are based on

employees’ basic pay, we calculated the proportions of the costs of

benefits and premium pays that increased annually due to pay

comparability adjustments. We then used these proportionate cost

increases due to comparability adjustments, and the proportionate

relationship of comparability adjustments to grade and pay level changes,

to calculate the increases in the costs of benefits and premium pay due to

grade and pay level changes. One exception was that we did not attribute

any increases in the government’s share of health insurance premiums to

pay comparability adjustments or other pay actions, since health insurance

premiums are not based on employees’ pay. We considered the changes in

costs of benefits and premium pay to be the difference between the

amounts due to comparability adjustments and grade and pay changes and

the total changes in the annual costs of benefits and premium pays.

 

5

Blue-collar employees are covered by a different pay system; however, their annual pay adjustments

have been similar to those received by white-collar employees.
Chapter 1

Introduction

Page 24 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Our calculations of the impact of comparability and other pay increases do

not provide an exact amount but rather an estimate, because the

government’s costs for some benefits and premium pay, such as overtime,

are also affected by other factors, such as a cap on the amounts that can

be paid. In addition, per employee costs were calculated on the basis of all

employees because data were not readily available on the specific number

of employees who received each type of benefit or premium pay. Further,

although temporary employees generally do not receive benefits, we did

not determine and adjust for the number of such temporary employees in

our calculations. Temporary employees comprised about 10 percent of the

federal civilian workforce in fiscal year 1997.

We totaled the change due to usage in the costs of various benefits and

premium pays to determine whether, in aggregate, the annual costs of

benefits and premium pays increased during the downsizing period and

thus contributed to an increase in the federal payroll.6

 In addition, we

determined the extent to which the costs of benefits and premium pays

due to usage increased or decreased during fiscal years 1993 through 1997.

To determine how, and to the extent possible why, the proportion of

employees in occupations and grade and pay levels changed

governmentwide, as well as in DOD and non-DOD agencies, we used

OPM’s Central Personnel Data File (CPDF) to analyze data on the numbers

of employees in occupations and general occupational categories in each

agency and governmentwide.7

 We calculated the extent to which the

percentage of employees in occupations with 500 or more employees, and

in general occupational categories, changed in proportion to the federal

workforce between October 1, 1987, and December 31, 1992, compared

with the period January 1, 1993, to March 31, 1998. We also did the same

analysis for the periods from October 1, 1987, through March 31, 1994, and

April 1, 1994, through March 31, 1998, for non-DOD agencies. We ranked

the five agencies with the highest increases and decreases in individual

occupations and in each general occupational category. We then selected

eight agencies that were among those ranked highest in a number of these

categories and that also had payrolls that represented over 3 percent of the

total federal payroll. Two agencies with smaller payrolls—the Federal

Emergency Management Agency and the Department of Housing and

 

6

The entire amount of annual changes in the cost of health insurance premiums was included in the

total amount of benefit costs attributed to usage.

7

The CPDF contains computerized records of most federal civilian employees, including employees’

grade levels and pay, as well as their personnel actions, such as promotions and performance pay

increases. These records are maintained and updated quarterly by OPM from data provided by federal

agencies.
Chapter 1

Introduction

Page 25 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Urban Development—were selected because they had the highest number

of changes in several occupations and occupational groups. We

interviewed officials at these 10 agencies to determine reasons why the

changes had occurred.

To determine how and why employees’ grade and pay levels changed and

the impact of those changes, we identified the primary factors that

increased employees’ pay. We obtained and analyzed CPDF data on the

types of pay actions and determined that career steps, promotions, and

performance pay increases together played the largest part in increasing

employees’ pay. We analyzed the CPDF data to determine the total number

and amounts of these actions for the two 5-year periods and adjusted the

amounts to exclude the sums attributable to annual pay comparability

adjustments. We had previously estimated the effect of comparability

adjustments on the costs of benefits and premium pay. We used these

estimates and assumed that the pay actions’ impact was in the same

proportional relationship to the comparability pay adjustments’ effect on

the costs of benefits and premium pay as was the proportional relationship

of comparability and pay actions for basic pay.

To determine the impact of separation and hiring patterns on the average

grade levels, we also analyzed the CPDF database to determine the

average grade for employees who were separated from, were hired into,

and who remained in the government in fiscal years 1988 through 1997. To

determine whether the average grade increased at a different rate during

downsizing than before downsizing, we calculated the difference in

employees’ average grade for the periods before downsizing—fiscal years

1988 through 1992—and during downsizing—fiscal years 1993 through

1997. We recognize that some of the change in the average grade and pay

would occur as a result of downsizing if the distribution of separated

employees were uneven across federal grade levels.

To determine the extent to which the number and salaries of supervisors

and managers, and their span-of-control, changed, and the effect of such

changes on the federal payroll, we analyzed the CPDF data on GS and blue

collar employees to identify the number of supervisors and managers, and

their ratio to staff, on September 30, 1987; September 30, 1992; and

September 30, 1997, for all agencies governmentwide.8

 For fiscal years

1993 through 1997, we also determined whether employees who had been

 8

We excluded blue collar employees in calculating the number of employees in grades GS-12 through

GS-15 on September 30, 1992, and September 30, 1997, because blue collar employees do not have GS

grades.
Chapter 1

Introduction

Page 26 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

identified as supervisors or managers after downsizing began, but were no

longer identified as supervisors or managers at subsequent dates, had a

code indicating the reason for the change, such as reclassification or

transfer to another position. For these former supervisors and managers,

we reviewed their salaries to determine the amount of any salary change at

the time they changed to nonsupervisory or nonmanagement positions.

For employees who became supervisors or managers, and for supervisors

and managers who left the federal government during downsizing, we

determined the amount of their salaries at those times. Our estimate of the

total pay of new supervisors and managers assumed that 86 percent of

those who were not hired from outside government were either replaced in

their previous nonsupervisory positions by new hires or that, somewhere

in the line of succession caused by the vacancy in their former position, an

employee from outside government was hired. We assumed that 14 percent

of the vacated positions were not filled, to reflect the overall 14 percent

staffing reduction during downsizing. We could not verify our assumptions

because the CPDF does not have information on whether newly appointed

supervisors or managers or other employees were replaced in their former

positions by new hires or existing employees.

To provide contextual information on the impact of downsizing on human

capital, we reviewed and summarized the relevant portions of our prior

reports. These reports, issued during fiscal years 1996 through 1999, are

cited where the relevant discussion occurs in chapter 2.

We did our audit work in Washington, D.C., from September 1998 through

July 1999 in accordance with generally accepted government auditing

standards.

We requested comments on a draft of this report from the Director of OPM

and the Secretary of DOD or their designees. OPM and DOD provided

written comments. OPM’s additional comments are presented at the ends

of chapters 2, 3, and 4, and are reprinted in appendix II. OPM and DOD

also provided technical comments, which we incorporated in the report

where appropriate. Subsequent to obtaining these agencies’ comments, we

revised the report to provide additional context on the impact of

downsizing on human capital. Since comments had been previously

requested from the appropriate agencies regarding the human capital

issues discussed in our prior reports, we did not request additional

comments.
Chapter 2

Impact of Downsizing on Federal Payroll and

Human Capital

Page 27 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Between the beginning of fiscal year 1993 and the end of fiscal year 1997,

the total federal payroll cost grew by $8.7 billion to $102.4 billion, even

though the number of employees decreased by about 300,000, because the

payroll cost reductions attributable to the employees who left were less

than the increased payroll costs for those employees who remained with

the federal government. In terms of 1997 constant dollars, however, the

payroll declined by $2.4 billion during the 5-year downsizing period. Based

on the change in the average cost per employee during fiscal years 1993

through 1997, the payroll cost could have been about $16.4 billion, or 16

percent, higher had there been no employee reductions. This estimate,

however, does not consider costs resulting from downsizing, such as the

cost of an increased number of separation payments and the use of

contractors to provide services previously provided by downsized

employees.

Because the $8.7 billion increase was based on 2.2 million employees in

1993 and 1.9 million employees in 1997, we recalculated the payroll

increase of about $11,600 per employee as it related to only 1.9 million

employees so that we could isolate the factors contributing to the increase.

We developed a payroll-increase approximation of about $21.6 billion.1

 For

comparison, in terms of 1997 constant dollars, the payroll increase was

approximately $6,460 per employee and $12.0 billion for 1.9 million

employees.

The increased payroll costs for those employed by the federal government

were attributable to several causes, but the predominant cause was the

annual, statutorily-based pay adjustment meant to make federal pay

competitive with that of nonfederal employers.

Other factors that directly increased the compensation of federal

employees were increases in the cost of employee benefits and a small

increase in the amount of premium pays that employees earned. These

factors are discussed in more detail in chapter 3. Certain changes in the

characteristics of the federal workforce also increased the overall federal

payroll cost. However, while career steps, promotions, and performance

pay increased the overall grade and payroll cost averages governmentwide,

hiring and separation patterns had the combined effect of lessening the

 

1

 We did not have the data necessary to determine the exact payroll costs for the 1.9 million employees

or for the net reduction of 300,000 employees during fiscal years 1993 through 1997. Therefore, we

used the difference between the average payroll cost per employee for 2.2 million employees in 1993

and 1.9 million employees in 1997 to approximate a $21.6 billion payroll increase for a constant

workforce of 1.9 million employees.
Chapter 2

Impact of Downsizing on Federal Payroll and Human Capital

Page 28 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

growth in the governmentwide average grade and payroll cost. These

factors are discussed in more detail in chapter 4.

Figure 2.1 shows the percentage each of these factors contributed to the

increase in payroll costs for those employed in 1997. The factors that

affected the federal payroll but not the characteristics of the workforce are

unshaded, while the factors that affected both the payroll and the

characteristics of the workforce are shaded.

Source: GAO calculations based on OPM data.

While our primary objective was to identify and analyze reasons for the

payroll increase, another was to summarize our past findings on human

capital issues related to downsizing. Our previous reviews of downsizing

found that a lack of adequate strategic and workforce planning by some

agencies may have affected their ability to achieve organizational missions

with a reduced workforce. In a subsequent study of six agencies’

experiences in the later stages of their downsizing efforts, we found that

Figure 2.1: Percentage Increase

Contributed by Various Factors to

Federal Payroll Costs, Fiscal Years

1993-1997
Chapter 2

Impact of Downsizing on Federal Payroll and Human Capital

Page 29 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

most of these agencies had more effectively planned and implemented

buyout programs and had generally linked buyouts to achieving specific

organizational objectives. These latter agencies were required to submit

strategic buyout plans to Congress prior to implementing buyouts.

The actual payroll at the beginning of fiscal year 1993 was $93.7 billion,

and it increased by $8.7 billion to $102.4 billion as of September 30,1997,

the end of that fiscal year. During that same time period, federal

employment was reduced from 2.2 million employees to about 1.9 million.

The net increase of $8.7 billion in the payroll occurred because employees’

payroll costs increased in excess of the payroll cost reductions resulting

from the separation of about 300,000 employees during the period. In

terms of 1997 constant dollars, however, the payroll declined by $2.4

billion during the 5-year downsizing period. At the same time, the average

payroll cost per employee increased in nominal dollars by $11,600, from

about $43,400 to $55,000, and by approximately $21.6 billion for a constant

workforce of 1.9 million employees. For comparison, this increase in terms

of 1997 constant dollars was about $6,460 per employee and about $12.0

billion for 1.9 million employees. Had the number of employees remained

at 2.2 million, and had the average cost of pay and benefits per employee

still increased by $11,600, the federal payroll would have increased from

$93.7 billion to $118.8 billion in fiscal year 1997.

Although the federal payroll is less than it would have been without

downsizing, it nevertheless increased in relation to what it would have

been had it been held constant since the beginning of fiscal year 1993. In

effect, the retrospective 1993 payroll for the 1.9 million employees on the

rolls as of September 30, 1997, was an estimated $80.8 billion, and it

increased by approximately $21.6 billion to $102.4 billion based on the

$11,600 increase in the average cost of pay and benefits per employee.

Figure 2.2 presents the actual and projected federal payrolls for fiscal

years 1993 through 1997 for the scenarios discussed in the preceding

paragraph. The figure shows the projected federal payrolls if the number

of employees had remained at 2.2 million during downsizing while the

average pay per employee increased annually at the rate experienced

during downsizing, as well as showing the actual federal payrolls during

downsizing.

Payroll Increases for

Remaining Employees

Were Larger Than

Payroll Decreases

Resulting From

Downsizing
Chapter 2

Impact of Downsizing on Federal Payroll and Human Capital

Page 30 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Source: GAO calculations based on OPM data.

The difference of approximately 16 percent between the projected federal

payroll if 2.2 million employees had remained in the federal government

and the actual payroll in fiscal year 1997 does not accurately represent the

amount saved by downsizing. This estimate does not consider the costs

resulting from downsizing, such as the cost of an increased number of

separation payments and the use of contractors to provide services

previously provided by downsized employees. In a previous report, we

noted that 5 of 24 agencies reviewed acknowledged contracting out some

work, formerly done by federal employees who had taken buyouts, to

compensate for having a smaller workforce.2

Table 2.1 shows the factors and the extent to which each contributed to

the changes in employees’ average pay and benefits and to total federal

payroll costs. These factors are discussed in more detail in chapters 3 and

4.

 

2

 Federal Downsizing: Better Workforce and Strategic Planning Could Have Made Buyouts More

Effective (GAO/GGD-96-62, Aug. 26, 1996).

Figure 2.2: Actual Versus Projected

Fiscal Year 1993-1997 Changes in the

Federal Payroll Amounts

Factors that Increased

the Federal Payroll

During Downsizing
Chapter 2

Impact of Downsizing on Federal Payroll and Human Capital

Page 31 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Status/change factor

Employee’s

average pay

Impact on federal payroll (in

billions)

Percentage of increase caused

by factor

Fiscal year 1993 $43,400

Increase due to annual pay comparability

adjustmentsa 6,840 $12.7 58.9

Increases in employees’ benefitsa 1,580 2.9 13.6

Increases in employees’ premium paya 30 0.1 0.3

Increases due to career steps, promotions,

performance pay increases, and the combination

of hiring and separation patternsb

3,180 5.9 27.3

Fiscal year 1997c$55,000d$21.6 100.0d

a

Addressed in chapter 3.

b

Addressed in chapter 4.

c

Employees’ average pay and the extent to which the factors increased the federal payroll as of fiscal

year 1997.

d

Numbers do not total due to rounding.

Source: GAO calculations based on OPM data.

When federal agencies allocate operating resources, the largest share often

is devoted to their workforces, that is, human capital. Thus, effectively

managing their human capital is critical to both effective accomplishment

of agencies’ missions and to efficient, effective, and economical

operations. Providing quality service while agencies downsize their human

capital can be extremely challenging without adequate planning.

Our reviews have found that a lack of adequate strategic and workforce

planning during downsizing by some agencies may have affected their

ability to provide quality service.3

 Also, the use of agencywide hiring

freezes made the replacement of employees with the types of skills needed

to perform agencies’ missions problematic. Some agencies acknowledged

that the loss of critical employees could have been avoided had the

agencies done meaningful planning and granted their buyouts consistent

with those plans. Agencies have also reported that downsizing in general

had negative effects. For example, 11 or more of 24 agencies in the 1996

review cited a loss of institutional memory, an increase in work backlogs,

or a somewhat of a or great hindrance in performing their mission.

In a subsequent study of six agencies’ experiences in the later stages of

their downsizing efforts, we found that most of these agencies had more

effectively planned and implemented buyout programs and had generally

 3

 Federal Downsizing: Better Workforce and Strategic Planning Could Have Made Buyouts More

Effective (GAO/GGD-96-62, Aug. 26, 1996) and Federal Downsizing: Buyouts at the Farm Service

Agency (GAO/GGD-97-133, July 23, 1997).

Table 2.1: Factors Causing Increased Cost per Employee and Federal Payroll to Change, Fiscal Years 1993 Through 1997

Impact of Downsizing

on Human Capital
Chapter 2

Impact of Downsizing on Federal Payroll and Human Capital

Page 32 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

linked buyouts to achieving specific organizational objectives.4 This

increase in buyout program effectiveness was due in part to a statutory

requirement (P.L. 104-208) that directed agencies to submit strategic

buyout plans to the appropriate congressional appropriation and oversight

committees prior to implementing buyout authority. The plans were

required to contain an outline of the intended use of the authority,

including such information as the number and amounts of buyouts to be

offered, the positions and functions to be reduced or eliminated, and a

description of how the agency would operate without the eliminated

positions and functions. Recent and pending legislation to provide buyout

authorities generally, but not always, require the agencies to submit similar

plans prior to or after implementation of the buyout program.

Strategic buyout plans are especially important given the general lack of

attention to human capital issues in federal agencies’ annual performance

plans that were prepared under the Government Performance and Results

Act of 1993. In this regard, we recently reported that most of the fiscal year

2000 annual performance plans do not sufficiently address how the

agencies will use their human capital to achieve results.5

 Specifically, few

of the plans relate how the agency will build, marshal, and maintain the

human capital needed to achieve its performance goals. This general lack

of attention to human capital issues is a serious omission because only

when the right employees are on board and provided the training, tools,

structure, incentives, and accountability to work effectively is

organizational success possible.

Improved planning by some agencies during the more recent downsizing

period should help to minimize those agencies’ future problems. Problems

such as skills imbalances and work backlogs, however, may take some

time to resolve. When human capital planning is linked to agencies’

strategic planning, problems such as skills imbalances are more easily

avoided. Thus, we continue to believe that a strong link is needed between

human capital planning and agencies’ strategic and programmatic

approaches to accomplishing their missions.

To ensure the most cost-effective use of any future buyouts and to help

mitigate the adverse effects that can result from poorly planned

downsizing, we recommend that Congress, in considering buyout

 

4

 Federal Downsizing: Effective Buyout Practices and Their Use in FY 1997 (GAO/GGD-97-124, June 30,

1997).

5

 Managing for Results: Opportunities for Continued Improvements in Agencies’ Performance Plans

(GAO/GGD/AIMD-99-215, July 20, 1999).

Conclusions

Recommendations to

Congress
Chapter 2

Impact of Downsizing on Federal Payroll and Human Capital

Page 33 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

legislation, continue to require agencies to prepare strategic buyout plans

as a prerequisite for implementing buyout authority and to implement

downsizing consistent with the results of their planning efforts. Similar to

what was done for buyouts authorized by P.L. 104-208, Congress should

also require agencies to submit their plans to appropriate congressional

committees prior to implementing their buyout authority.

DOD and OPM concurred with our findings. OPM agreed that much of the

increase in payroll cost during downsizing was due to pay raises, with

smaller increases due to changes in the workforce’s composition and in

benefits costs. OPM also said that it believes the report reflects the success

of the administration’s efforts to slow the rate of growth in federal

employment and payroll costs, noting that the growth would have been

much greater had the federal workforce not been reduced by about

300,000 employees during the period we reviewed. We agree that the

federal payroll could have been larger in the absence of downsizing and

recognize the importance of the administration’s role in downsizing the

government. However, as noted in chapter 1, both Congress and the

administration played roles in the downsizing effort. Subsequent to

obtaining the agencies’ comments, we revised the report to provide

additional context on the impact of downsizing on human capital. Since

comments had been previously requested from the appropriate agencies

regarding the human capital issues discussed in our prior reports, we did

not request additional comments.

Agency Comments
Chapter 3

Annual Pay Comparability Adjustments Were

the Primary Cause of Increased Payroll Costs

Page 34 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

The increased payroll costs for the 1.9 million federal employees in fiscal

year 1997 were due primarily to employees’ annual pay comparability

adjustments. The annual pay comparability adjustments were responsible

for an estimated 59 percent of the overall increase in federal payroll costs.

This estimate includes the effect of comparability adjustments not only on

the basic pay of federal employees, but also on the costs of other types of

pay and employee benefits, such as premium pay, the costs of which are

based on percentages of employees’ basic pay. Basic federal pay rose

about $5,440 per employee due to annual comparability increases during

fiscal years 1993 through 1997, and associated pay and benefits increased

about $1,400 per employee. These pay comparability adjustments were

comparable to the increases provided to nonfederal employees during the

same period, as measured by the ECI.

Some of the benefits that are calculated on the basis of employees’ basic

pay increased by more than the amounts that were due to basic pay

increases. In addition, some benefits costs, such as health insurance

premiums, that are not calculated on the basis of employees’ basic pay also

increased during fiscal years 1993 through 1997. In total, increases in the

cost of benefits, exclusive of the increases directly attributable to

increases in employees’ basic pay, accounted for an estimated 13.6

percent, or $1,580 per employee, of the overall increase in the average

payroll cost per employee.

Premium pay, exclusive of the effect of comparability and other pay

increases, also increased in cost during fiscal years 1993 through 1997.

This accounted for about 0.3 percent, or $30, of the overall $11,600

increase in federal payroll costs per employee.

During fiscal years 1993 through 1997, comparability adjustments

increased the average payroll cost per employee by about $6,800, or an

estimated $12.7 billion for the 1.9 million employees. These pay

adjustments affected not only employees’ basic pay, but also the amounts

of premium pay and the cost of benefits provided by the government, since

most of these costs are based on percentages of an employee’s basic pay.

Thus, the pay comparability adjustments resulted in increases in the

average employee’s basic pay, benefits, and premium pay of about $5,400,

$1,020, and $380, respectively. The comparability adjustments increased

pay and benefits by about 17 percent, which was somewhat less than the

approximately 19-percent increase resulting from such adjustments during

the preceding 5-year period.

Annual Pay

Comparability

Adjustments Were the

Major Cause of the

Increases in Payroll

Costs
Chapter 3

Annual Pay Comparability Adjustments Were the Primary Cause of Increased Payroll Costs

Page 35 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Annual pay comparability adjustments are intended to make federal pay

competitive with that of alternative employers so that the federal

government can attract and retain employees. During this period,

comparability adjustments to employees’ basic pay totaled about 17

percent. This was comparable to the 16-percent increase provided by

nonfederal employers, as measured by the ECI. In most years before and

during downsizing, however, the President and Congress acted to reduce

the adjustments that otherwise would have been provided under the

statutory pay formulas. During the 5-year period, for example, the

combined nationwide and locality pay adjustments were about 9

percentage points less than the 24.5 percent adjustment that was

calculated but not provided under the pay formulas.

During fiscal years 1993 through 1997, the cost of benefits, exclusive of the

effect attributable to comparability and other pay increases, increased by

$1,576 per employee. Thus, the cost of benefits for 1.9 million employees

contributed an estimated $2.9 billion, or 13.6 percent, of the $21.6 billion

increase in the total payroll. However, the average annual increase per

employee was about 29 percent less than during the previous 5-year

period. Also, the total change in the cost of benefits, compared with the 5-

year period preceding downsizing, was $4.2 billion less governmentwide,

due primarily to the reduction in the number of employees.

The cost of benefits per employee increased during the 5-year downsizing

period, as well as between most of the years during the period, due

primarily to increases in the cost of five benefits. The five benefits

primarily responsible for the increase were health insurance premiums;

retirement contributions, including agencies’ contributions to employees’

Thrift Savings Plan accounts; separation and severance payments; Social

Security contributions; and other benefits, which included retirement and

other benefits charged to agencies under special plans for non-U.S. citizens

in foreign areas.

Table 3.1 shows the change in the cost of benefits, per employee and

governmentwide, between the beginning of fiscal year 1993 and the end of

fiscal year 1997.

Benefits Cost

Increases Accounted

for Over 13 Percent of

the Payroll Cost

Increase
Chapter 3

Annual Pay Comparability Adjustments Were the Primary Cause of Increased Payroll Costs

Page 36 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Benefit

Change in cost of benefits per employee

during downsizinga

Change in cost of benefits projected to 1.9

million employees (in thousands)

Health insurance $249 $463,204

Life insurance (9) (16,287)

Retirement 520 968,102

Social Security 232 430,946

Workers compensation 89 165,272

Overseas allowance (70) (131,078)

Severance/separation pay 385 716,481

Other benefits b 120 223,831

Miscellaneous benefits c 61 113,581

Total $1,576d$2,934,051d

a

Per employee costs are calculated on the basis of all employees because data were not readily

available on the specific number of employees who received each type of benefit.

b

Other benefits include agencies’ costs for employees’ retirement and other benefits under special

plans for non-U.S. citizens in foreign areas. They also include relocation and other expenses related

to the movement of employees to new duty stations.

c

Miscellaneous benefits include uniform allowances, nonforeign cost-of-living-adjustments (COLA),

retention allowances, and recruitment and relocation bonuses.

d

Numbers do not total due to rounding.

Source: GAO calculations based on OPM data.

Although benefits costs increased during downsizing, the increases were at

a lower rate than during the previous 5-year period. Benefits costs per

employee increased by $315 annually during downsizing. This increase was

$129, or about 29 percent, less than the annual increase per employee

during the previous 5-year period. Appendix I contains additional

information comparing the downsizing period with the previous 5-year

period.

Since the costs of benefits are generally determined by governmentwide

policies, we obtained opinions from OPM officials who are knowledgeable

of the effect of these policies. According to OPM officials, the primary

reasons for the increases that did occur were agencies’ costs for buyouts

and for their contributions to employees’ Thrift Savings Plan accounts.

During downsizing, over 170,000 buyouts were paid, totaling about $3.9

billion in separation pay. OPM officials said that the increase in retirement

and Social Security contributions during downsizing was due primarily to

the increasing number of employees covered by the Federal Employees

Retirement System (FERS). As employees increased their contributions—

now averaging about 4 percent of annual pay—to the Thrift Savings Plan,

the agencies had to match those contributions under FERS. In addition,

under FERS, agencies are required to make Social Security contributions

for the increasing number of employees in FERS.

Table 3.1: Changes in Cost of Benefits per Employee and Governmentwide During Downsizing
Chapter 3

Annual Pay Comparability Adjustments Were the Primary Cause of Increased Payroll Costs

Page 37 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

During fiscal years 1993 through 1997, the cost of premium pay, exclusive

of the effect of comparability and other pay increases, increased by $30 per

employee. Thus, the cost of premium pay contributed to increasing the

total payroll cost for the 1.9 million employees by an estimated $0.1 billion,

or 0.3 percent, of the $21.6 billion increase in the total payroll. The annual

average increase in the cost of premium pay per employee was about 91

percent less than during the previous 5-year period. Also, the total cost of

premium pay compared with the 5-year period preceding downsizing was

$1.4 billion less on a governmentwide basis, primarily due to the reduction

in the number of employees.

Premium pay costs on a per employee basis increased during the 5-year

downsizing period, as well as generally between years in the period.

Although most types of premium pay decreased during downsizing, there

was an overall increase, due primarily to increases in the costs of

overtime, Sunday premium pay, and physicians’ comparability allowances.

Table 3.2 shows the change in the cost of premium pay, per employee and

governmentwide, between the beginning of fiscal year 1993 and the end of

fiscal year 1997.

Premium pay

Change in cost of premium pay per

employee during downsizinga

Change in cost of premium pay projected

to 1.9 million employees (in thousands)

Overtime $121 $225,506

Holiday (3) (4,914)

Sunday 8 14,426

Night differential (15) (28,758)

Hazardous duty (1) (2,308)

Post differential (16) (30,043)

Supervisory differential 1 2,625

Physicians’ comparability allowances 30 55,339

Cash awards (30) (55,413)

Other premium payb (63) (117,862)

Miscellaneous premium payc (2) (2,978)

Total $30 $55,618d

a

Per employee costs are calculated on the basis of all employees because data were not readily

available on the specific number of employees who received each type of premium pay.

b

Includes payments above the basic rates for any other premium pay, such as annual premium pay

for regularly scheduled standby duty.

c

Includes staffing differential and remote site allowance pay.

d

Numbers do not total due to rounding.

Source: GAO calculations based on OPM data.

Premium Pay

Increases Were

Minimal

Table 3.2: Changes in Cost of Premium Pay per Employee and Governmentwide During Downsizing
Chapter 3

Annual Pay Comparability Adjustments Were the Primary Cause of Increased Payroll Costs

Page 38 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Premium pay increased on a per employee basis during downsizing,

although the annual average increases were less than during the previous

5-year period. The annual average increase of $6 per employee during

downsizing was about 91 percent less than the average annual increase of

$70 per employee during the previous 5-year period. For additional

information comparing the downsizing period with the previous 5-year

period, see appendix I.

We contacted agencies that experienced the highest increased costs for

overtime, as well as for several other premium pays, during downsizing to

identify the reasons for the cost increases. Department of Justice officials

attributed increases in overtime, Sunday, and other premium pays to

several factors, such as

• a growth in the law enforcement occupations that perform the majority

of the department’s overtime, holiday, Sunday, and night work (for

example, the number of Border Patrol personnel increased by 33.2

percent), and

• enactment of the Federal Law Enforcement Pay Reform Act of 1990,

which raised hourly and biweekly premium pay caps, mandated higher

special salary rates for certain law enforcement employees, and

provided pay increases for such employees in specific large

metropolitan areas.1

Justice officials also attributed increases in the amount of physician

comparability allowances to a 55-percent increase in the Bureau of

Prison’s correctional officer workforce, which includes physicians.

Department of Transportation officials said that their increases in Sunday

premium pay, holiday pay, and other premium pays during downsizing

were due to increased air traffic activity, which resulted in higher numbers

of Federal Aviation Administration employees working hours that entitled

them to premium pay.

The average amount of cash awards and other premium pay per employee

decreased annually during downsizing. DOD officials cited several reasons

for the decrease in the amount of most cash awards and other premium

pays, including a congressional mandate to reduce the overall defense

budget.

 

1

While this authority was enacted prior to the downsizing period, the effect continued during the

downsizing period.
Chapter 3

Annual Pay Comparability Adjustments Were the Primary Cause of Increased Payroll Costs

Page 39 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

DOD and OPM agreed with our findings. OPM also commented that the

increased cost of benefits was driven mainly by increases in direct agency

payments for retirement contributions and health insurance that would

have occurred in any case. Our review identified retirement contributions

and health insurance premiums as two of the primary factors contributing

to increased benefits costs, and they probably would have occurred

without downsizing. However, the increase in severance pay, which

contributed the second greatest amount to the overall increase in benefits

costs, was affected by the buyouts and early retirements offered during the

downsizing period we reviewed.

Agency Comments
Chapter 4

Career Steps, Other Pay Actions, and

Workforce Composition Changes Contributed

About One-Fourth of the Payroll Increase

Page 40 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Pay actions other than comparability payments and the combined effect of

hiring and separation patterns together resulted in an increase of about

$3,180 per employee, or about $5.9 billion of the payroll increase for a

constant workforce of 1.9 million employees during downsizing. The

combination of these factors also contributed to a more highly paid

workforce, with a higher proportion of employees in occupations with

higher pay governmentwide and an increase in the average grade level

from the beginning to about the mid-point of GS-9. Although grade levels

increased, the increases in the average grade levels were about the same

during the downsizing period and the previous 5-year period.

Our analysis of governmentwide data also showed that reductions in the

number of supervisors and managers during downsizing increased the

ratio of supervisors to employees from 6.6 to 7.7 employees per supervisor

but had a limited effect on the federal payroll.

Career step increases, promotions, performance pay, and the combined

effect of hiring and separation patterns contributed about $3,180 per

employee and $5.9 billion of the $21.6 billion payroll increase for 1.9

million employees during downsizing. The resulting changes in the

characteristics of the workforce caused the average grade level to increase

from GS-9.1 to GS-9.5 during downsizing. Although employees received

fewer promotions during the downsizing period, this almost one-half grade

increase was similar to the rate-of-grade increase during the previous 5-

year period.

Table 4.1 presents the total number and dollar amounts of pay actions

during downsizing for employees still in the government in fiscal year

1997, exclusive of comparability pay adjustments. The pay actions

increased the federal payroll in the years they were provided and in each

succeeding year the employee remained in the federal government. The

effect of this $6.1 billion in pay increases on payroll cost was partially

offset, however, by the combined effect of hiring and separation

patterns—discussed in the next section—which served to lessen the

payroll increase to $5.9 billion during downsizing.

Impact of Career

Steps, Promotions, and

Performance Pay
Chapter 4

Career Steps, Other Pay Actions, and Workforce Composition Changes Contributed About

One-Fourth of the Payroll Increase

Page 41 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Type of action

Number of actions

during downsizing

Increase in basic pay due to

actions during downsizing

(in thousands)a

Career step increases 2,924,480 $2,733,829

Promotions 1,033,254 2,594,616

Performance based increases 664,318 812,003

Total 4,622,052 $6,140,448

a

Amounts exclude the effect of comparability pay adjustments.

Source: GAO calculations based on data in OPM’s CPDF.

Figures 4.1 and 4.2 show that the number and dollar amounts of

promotions, career step increases, and performance-based increases

varied during the downsizing period in comparison with the previous 5-

year period. The average number and amount of promotions and the

average number of performance pay awards decreased, while the average

number and dollar amounts of career steps and the average dollar amounts

of performance pay increased during downsizing.

Source: GAO calculations based on data in OPM’s CPDF.

Table 4.1: Number and Amount of

Personnel Actions Affecting Payroll

During Downsizing Period

Figure 4.1: Annualized Average Number

of Career Step Increases, Promotions,

and Performance Pay Increases per

1,000 Employees During Downsizing

Compared With the 5-year Period Before

Downsizing
Chapter 4

Career Steps, Other Pay Actions, and Workforce Composition Changes Contributed About

One-Fourth of the Payroll Increase

Page 42 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Source: GAO calculations based on data in OPM’s CPDF.

During the 5-year downsizing period, 2.9 million career step increases for

employees still in the federal workforce in fiscal year 1997 accounted for

an increase in federal basic pay of about $2.7 billion, exclusive of

comparability pay increases. Career step increases are based on the

amount of time spent by an employee in a given grade and step and an

employee’s demonstration of an acceptable level of competence. Increases

for GS employees may occur every 52, 104, or 156 weeks, depending on the

employee’s step.

Exclusive of annual pay comparability adjustments, the annual average

number and dollar amount of all career step increases during downsizing

were 348 per 1,000 employees and $789 per career step, respectively. This

was an annual average increase of 1 career step per 1,000 employees and

$46 per employee compared with the average for the previous 5-year

period.

During the downsizing period, employees who were still in the federal

workforce in fiscal year 1997 received about 1.0 million promotions to a

higher grade level, which increased federal basic pay by about $2.6 billion,

exclusive of annual comparability adjustments. The annual average

number and dollar amount of all promotions during downsizing was 122

per 1,000 employees and $2,120 per promotion, respectively. Compared

Figure 4.2: Dollar Value of Career Step

Increases, Promotions, and

Performance Pay Increases per Pay

Action During Downsizing Compared

With the 5-year Period Before

Downsizing

Career Steps

Promotions
Chapter 4

Career Steps, Other Pay Actions, and Workforce Composition Changes Contributed About

One-Fourth of the Payroll Increase

Page 43 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

with the previous 5-year period, this was an annual average decrease of 48

promotions per 1,000 employees and about $18 per promotion, exclusive

of pay comparability adjustments.

During the downsizing period, about 700,000 performance pay increases

were awarded to employees still in the federal workforce in fiscal year

1997, which increased federal basic pay by about $0.8 billion, exclusive of

comparability pay increases. Performance pay increases were a

combination of GS quality step increases and merit pay increases. Quality

step increases are step increases granted by the head of an agency in

recognition of high quality performance and above that ordinarily found in

the type of position concerned. Unlike career step increases, quality step

increases can be granted annually.

GS quality step increases were awarded only to nonsupervisory and

nonmanagement employees during the 5-year period preceding downsizing

and through the end of fiscal year1993 during downsizing. Merit pay

increases were awarded in the Performance Management and Recognition

System, which existed between the beginning of fiscal year 1985 and the

end of fiscal year 1993. This program established step and partial step

increases for managers and supervisors in grades GS-13 through GS-15

who received certain high level ratings. When this program was

terminated, these employees became eligible for the GS career and quality

step increases.

The annual average number and dollar amount of all performance step

increases during downsizing were 80 per 1,000 employees and $1,035 per

performance step, respectively, exclusive of annual pay comparability

adjustments. These figures represented an annual average decrease of 10

quality performance steps per 1,000 employees and an increase of $47 per

step, compared with the previous 5-year period.

In addition to the pay actions discussed in the previous section, hiring and

separation patterns also affected the workforce composition during

downsizing. The combination of hiring and separation patterns lessened

the extent to which the average payroll cost and grade level increased

during downsizing and, to an even greater extent, during the previous 5-

year period. Hiring and separation patterns, however, caused employees’

average age and length of service to increase at a greater rate during

downsizing than in the previous 5-year period. Hiring and separation

patterns had a limited effect on the proportion of employees in

occupational categories.

Performance Pay

Impact of Hiring and

Separation Patterns
Chapter 4

Career Steps, Other Pay Actions, and Workforce Composition Changes Contributed About

One-Fourth of the Payroll Increase

Page 44 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

While career steps, promotions, and performance pay directly increased

individual employees’ pay and grade level as well as the overall payroll

cost and grade averages, hiring and separation patterns can also affect the

governmentwide average grade and payroll cost. The pay actions increased

the total basic pay of the recipient employees still in the government in

fiscal year 1997 by $6.1 billion. However, due to hiring and separation

patterns, the total basic pay of all employees in fiscal year 1997 was only

$4.7 billion greater than the total basic pay for a constant workforce of 1.9

million employees in the beginning of fiscal year 1993. This only modest

increase was due to new hires with lower average basic pay entering the

government and employees with higher basic pay separating from the

government during downsizing, which had the effect of lessening the

increase in total basic pay by $1.4 billion, or about $775 per employee. As

previously discussed, most benefit costs and premium pay are proportions

of basic pay, and thus the increase in basic pay also increased benefit costs

and premium pay of the employees by $1.2 billion governmentwide. As a

result, the net average payroll increase was $5.9 billion, $4.7 billion in basic

pay and $1.2 billion in premium pay and benefits.

New hires also were employed at lower grade levels, and thus reduced the

extent to which governmentwide average grade levels increased. On the

other hand, the separation of employees with grade levels below the

governmentwide average—which occurred in both 5-year periods—

increased average grade levels. Thus, as a result of the combined effect of

pay actions and hiring and separation patterns during downsizing, the

average grade level increased from GS-9.1 to GS-9.5.

The number of new hires during downsizing was about 300,000 fewer than

the number of separations, compared with the previous 5-year period in

which the number of new hires exceeded the number of separations.

From fiscal years 1993 through 1997, the combined effect of hiring fewer

and separating a larger proportion of staff at grade and pay levels below

the governmentwide average lessened, by about 6 steps, the increases that

would otherwise have resulted from the pay actions related to individual

employees.1

 In comparison, hiring and separation patterns lessened the

effect of pay actions by 7 and 1/2 steps during the prior 5-year period.

 

1

The average grade and step levels cannot be used to compute the dollar impact on the federal payroll

because the composition of the average may vary and each higher grade and step level does not

necessarily equate to higher pay. For example, if an average grade of GS-9, step 1, was composed of a

GS-8, step 8, and a GS-9, step 4, the average pay of the two employees would actually be much higher

than GS-9, step 1, pay since both a GS-8, step 8, and a GS-9, step 4, receive pay rates higher than GS-9,

step 1.

Hiring and Separation

Patterns Lessened Payroll

and Grade Increases
Chapter 4

Career Steps, Other Pay Actions, and Workforce Composition Changes Contributed About

One-Fourth of the Payroll Increase

Page 45 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

To illustrate how hiring and separation patterns can lessen grade level

increases due to pay actions, consider two employees: a GS-8, step 1, and a

GS-10, step 1. In this case, the average grade would be GS-9, step 1.

Assume that during the next 5 years, the GS-10 received 4 promotions to

GS-14, step 1, while the GS-8 separated from the government and was

replaced by a new hire at GS-6, step 1. The resulting increase in average

grade would be one grade, from GS-9 to GS-10 (the average of a GS-6, step

1, and GS-14, step 1). However, had the GS-8 stayed in the government and

not received any grade or step increases, the average grade would have

increased by two grades to GS-11 (the average of GS-8, step 1, and GS-14,

step 1).

During the downsizing period, the average age and years of service of

federal employees increased by 1.7 and 1.6 years to 45.1 and 16.0 years,

respectively, at the end of fiscal year 1997. These increases were

respectively 55 and 100 percent greater than the 1.1 and 0.8 year increases

in the average age and years of service experienced during the previous 5-

year period. We did not analyze the ages and years of service for the

employees leaving and entering the federal government during downsizing.

However, the accelerated increase in the average age and service of

federal employees indicated that the combination of ages and years of

service of the employees separated and hired during downsizing, and the

reduced level of hiring, contributed to an older, more experienced

workforce.

Although the total number of employees in individual occupational series

sometimes changed fairly substantially, shifts in the proportion of federal

employees in broader occupational categories—another measure of the

composition of the workforce—were much less pronounced. For example,

the secretarial occupation within the clerical category decreased by 28,721

employees. While this represented about a 31-percent decrease in the

number of secretaries in the government, the clerical category decreased

overall by only 3.2 percentage points.

Within broad occupational categories, the more highly paid professional

and administrative categories experienced the greatest increases. As table

4.2 shows, the percentage of employees governmentwide in the

administrative and professional categories increased by 3.6 and 1.8

percentage points, respectively, from January 1, 1993, to March 31, 1998.

These increases were small primarily because, while the administrative

and professional occupations comprised about 25 and 22 percent of

employees governmentwide as of January 1, 1993, only 21 and 19 percent

of these employees, respectively, separated during downsizing.

Employee’s Average Age

and Length of Service

Increased at a Greater Rate

Due to Hiring and

Separation Patterns

Hiring and Separation

Patterns Had Limited

Impact on the Proportion of

Employees in Occupational

Categories
Chapter 4

Career Steps, Other Pay Actions, and Workforce Composition Changes Contributed About

One-Fourth of the Payroll Increase

Page 46 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Occupational category

Percentage as of

1/01/93

Percentage of

employees

separating

Percentage of new

hires

Percentage as of

3/31/98

Percentage

difference between

1/01/93 and 3/31/98

Professional 22.3 18.9 17.9 24.1 1.8

Administrative 25.0 21.0 10.6 28.6 3.6

Technical 18.6 19.2 22.2 19.0 0.4

Clerical 15.5 18.9 28.2 12.3 (3.2)

Other 2.5 3.9 6.1 2.6 0.1

Blue collar 16.1 18.1 15.0 13.4 (2.7)

Total 100.0 100.0 100.0 100.0 0.0

Source: GAO calculations based on data in OPM’s CPDF.

Non-DOD agencies experienced most of the changes in the administrative

and professional occupational categories. Non-DOD agencies’ employees

in the two categories increased by 3.1 and 1.8 percentage points during the

governmentwide downsizing period. DOD agencies’ employees in the

administrative and professional occupations increased by 0.5 and 0.1

percentage points, respectively, during the same period.

The Department of Transportation experienced the highest percentage

increase in administrative employees due in part to the transfer of about

6,300 employees from a clerical occupation to the newly established

administrative occupation of airway transportation systems specialist in

the Federal Aviation Administration (FAA). According to FAA officials, the

new occupational series more closely matched the transferred employees’

duties and responsibilities.

The proportion of employees in the blue collar and clerical occupations in

the overall workforce decreased by 2.7 and 3.2 percentage points,

respectively, from January 1, 1993, to March 31, 1998. Blue collar and

clerical occupations comprised 16.1 and 15.5 percent of the workforce,

respectively, as of January 1, 1993, but experienced 18.1 and 18.9 percent,

respectively, of the separations during downsizing. And while 15.0 and 28.2

percent of the new hires entered these occupations, respectively, they

were fewer in number than the employees separating. For example, there

were 74,446 new hires in the clerical category, while 127,431 employees

separated.

DOD agencies experienced the greatest change in the clerical and blue

collar occupations, with decreases of 1.9 and 2.6 percentage points,

respectively, while non-DOD agencies’ employees in these categories

decreased by 1.3 and 0.1 percentage points, respectively, from January 1,

1993, to March 31, 1998. Defense Logistics Agency officials told us that the

Table 4.2: Proportion of Employees in, Separated From, and Newly Hired Into Occupational Categories During Downsizing
Chapter 4

Career Steps, Other Pay Actions, and Workforce Composition Changes Contributed About

One-Fourth of the Payroll Increase

Page 47 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

reduction in the proportion of blue collar employees occurred because of

base closures of depot activities heavily populated with blue collar

employees. The Department of Navy also cited base closures as a primary

reason. During the downsizing period, a number of DOD bases were

closed, and the contracting out of services increased.

Changes in the occupational categories continued a trend that existed

during the 5-year period before downsizing. The same occupational

categories increased (administrative, professional, technical, and other)

and decreased (clerical and blue collar) during the downsizing period as

during the preceding period, with the only variation being the extent of the

change. For example, the professional category increased by 3.3

percentage points before downsizing compared with 1.8 percentage points

during downsizing.

During downsizing, the number of supervisors and managers decreased

and the ratio of staff to supervisors increased governmentwide, but the

effect on the federal payroll was limited. While the staff-tosupervisor/manager ratio did not meet the former National Performance

Review’s goal of 15 to 1, the governmentwide ratio did increase from 6.6 to

7.7 employees per supervisor or manager during downsizing.2

The number of supervisors and managers declined by 88,162, or 26.5

percent, from 332,100 to 243,938 governmentwide from the beginning of

fiscal year 1993 through fiscal year 1997. The net decrease was composed

of (1) 202,626 employees who left supervisory and management positions,

and (2) 114,464 employees who became supervisors and managers through

hiring, promotion of other staff, and other personnel actions. Of the

202,626 employees who left their supervisory and management positions

during downsizing, 74,757, or 36.9 percent, left the federal government.

The remaining 127,869 employees were reclassified as nonsupervisory or

nonmanagement, 59,080 of whom were either transferred or downgraded

to other positions; OPM data did not indicate how the other 68,789 were

reclassified.

Many of the supervisors and managers were reclassified as team leaders.

An OPM official said that, although our analysis indicated there were 2,295

such reclassifications, the number may be understated because, through

 2

The National Performance Review was established by the Clinton administration to reinvent the

federal government. The Review was replaced by the National Partnership for Reinventing

Government in 1998.

Decrease in Number of

Supervisors and

Managers Had Limited

Payroll Impact
Chapter 4

Career Steps, Other Pay Actions, and Workforce Composition Changes Contributed About

One-Fourth of the Payroll Increase

Page 48 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

fiscal year 1997, many agencies were not yet using any code for identifying

team leaders when submitting data to OPM.

In several respects, team leaders perform duties similar to those of

supervisors and managers, as indicated by OPM’s General Schedule Leader

Grade Evaluation Guide, which defines the duties an employee must

perform to be classified as a team leader. The guide states that leadership

and supervision may be thought of as points along a continuum from

nonsupervisory to managerial work. The range of duties a team leader may

be assigned is very flexible—for example, duties may be just sufficient to

meet the minimum for classification as a team leader to almost sufficient

to warrant a supervisory classification. Team leaders are responsible for

coordinating and supporting the work of their assigned teams to ensure

that the work is completed. Their specific duties and responsibilities

include ensuring that the organization’s mission is communicated to the

team and integrated into the team’s work plans and products, and leading

the team in balancing the workload among team members according to

skill levels.

The reclassifications and separations of supervisors and managers,

combined with the addition of newly hired or designated supervisors and

managers, resulted in a small increase in payroll. Over 50 percent, or 1 of

every 2 supervisors and managers, was replaced through new hires,

promotions of other staff, and other personnel actions. The basic pay of

these replacements, combined with the promotions received by some of

those reclassified from supervisory and managerial positions, exceeded

the total basic pay for supervisors and managers who left government plus

the total reduction in basic pay experienced by some of those who were

reclassified.

Table 4.3 shows the estimated increase in the federal payroll during

downsizing due to the situation described above. The estimate assumes

that most of the new supervisors and managers who were not hired from

outside government were either replaced in their previous positions by

new hires or that, somewhere in the line of succession caused by the

vacancy in their former position, an employee from outside the

government was hired. We assumed that, based on the governmentwide

employee reduction rate of about 14 percent, 14 percent of the new

supervisors and managers were not replaced in their former positions. We

could not verify our assumption because the CPDF did not have

information with which to determine whether newly appointed supervisors

or managers or other employees were replaced in their former positions by

new hires or existing employees.
Chapter 4

Career Steps, Other Pay Actions, and Workforce Composition Changes Contributed About

One-Fourth of the Payroll Increase

Page 49 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Personnel action

Number of supervisors and

managers

Total increase or

(decrease) in basic

 pay (in thousands)

New supervisors and managersa 114,464 $4,694,688

Former supervisors and managers

 Separated supervisors and managers (74,757) (4,533,121)

 Reclassified supervisors and managers whose pay remained the same (114,711)

 Reclassified supervisors and managers whose pay decreasedb (13,096) (53,496)

 Reclassified supervisors and managers whose pay increasedc (62) 229

Net increase or (decrease) (88,162) $108,300 a

Amount attributed to new supervisors’ and managers’ basic pay was adjusted based on assumption

that 14 percent were not replaced in their former jobs.

b

Since reclassified supervisors and managers remained in the government, only the amounts of

decreases in their basic pay were considered in computing reductions in the federal payroll.

c

Reclassified supervisors and managers who received promotions within 2 weeks of having their

position changed or of being downgraded.

Source: GAO calculations based on data in OPM’s CPDF.

The impact on the federal payroll of the reduction in the number and

proportion of supervisors and managers can also be considered from

another perspective. While the number of supervisors and managers

decreased, the number of employees in the grade and pay levels usually

occupied by supervisors and managers—GS-12 and above—increased by

3,580 employees, from 554,419 to 557,999, during downsizing. This

indicates that, while the supervisory and management positions decreased,

similarly graded and paid positions increased during downsizing. This was

partially due to the fact that most former supervisors and managers

retained their grade and pay levels.

The results of our governmentwide review are consistent with changes at

the Social Security Administration (SSA) during fiscal years 1994 through

1998.3

 SSA, while reducing its supervisor to employee ratio, at the same

time created 1,900 new nonsupervisory positions, most of which were

filled by former supervisors. Consistent with OPM guidance, the GS grades

and salaries of these former supervisors did not change. The total number

of SSA employees in grades GS-12 and above increased by over 900

employees during this time.

DOD and OPM concurred with our findings. OPM noted that the changes in

the composition of the federal workforce likely reflected the continuation

of a long-term trend away from a technical and clerical workforce toward

a more professional and administrative workforce.

 

3

Social Security Administration: Compliance With Presidential Directive to Reduce Management-toStaff Ratio (GAO/HEHS-99-43R, Jan. 22, 1999).

Table 4.3: Effect of Acquiring and Separating or Reclassifying Supervisors and Managers Governmentwide During Downsizing

Agency Comments
Appendix I

Comparison of Benefit Costs and Premium

Pays per Employee for the 5-Year Periods

Before and During Downsizing

Page 50 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Benefit

Annual average

change per

employee before

downsizing

Annual average

change per

employee during

downsizing

Amount of the

change between

the periods

Amount of change

per employee due

to benefits

Amount of change

per employee due to

comparability and

other pay actions

Health insurance $194.68 $49.77 $(144.91) $(144.91) $0.00

Life insurance 1.51 1.46 (0.05) 0.25 (0.30)

Retirement 290.04 275.39 (14.65) (44.99) 30.34

Social Security 144.13 116.53 (27.60) (43.07) 15.47

Workers’ compensation 3.48 31.21 27.73 28.61 (0.88)

Overseas allowance 20.79 (4.59) (25.38) (23.12) (2.26)

Severance/separation pay 4.90 92.12 87.22 74.43 12.79

Other benefitsa 19.81 36.49 16.68 17.69 (1.01)

Miscellaneous benefitsb 6.64 16.47 9.83 5.92 3.91

Total $685.98 $614.85 $(71.13) $(129.19) $58.06 a

Other benefits include costs charged to the agency for employee's retirement, and other benefits

under special plans for non-U.S. citizens in foreign areas. Also includes relocation and other

expenses related to permanent change of station.

b

Miscellaneous benefits include uniform allowances, nonforeign COLAs, retention allowances, and

recruitment and relocation bonuses.

Source: GAO calculations based on OPM data.

Table I.1: Changes in Annual Average Cost of Benefits per Employee During Downsizing Due to Changes in Benefits and

Comparability and Other Pay Actions
Appendix I

Comparison of Benefit Costs and Premium Pays per Employee for the 5-Year Periods Before

and During Downsizing

Page 51 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Premium pay

Annual average

change per

employee before

downsizing

Annual average

change per

employee during

downsizing

Amount of the

change between

periods

Amount of change

per employee due to

premium pays

Amount of change

per employee due to

comparability and

other pay actions

Overtime $76.58 $79.73 $3.15 $(3.89) $7.04

Holiday 2.99 4.48 1.49 1.03 0.46

Sunday 4.63 6.26 1.63 0.90 0.73

Night differential 5.61 2.58 (3.03) (2.83) (0.20)

Hazardous duty 0.70 0.89 0.19 (0.20) 0.39

Post differential 2.09 (1.90) (3.99) (3.81) (0.18)

Supervisory differential 0.13 1.37 1.24 0.15 1.09

Physicians’ comparability

allowances

30.55 13.87 (16.68) (24.61) 7.93

Cash awards 35.42 11.34 (24.08) (26.11) 2.03

Other premium paya 7.59 (1.14) (8.73) (3.82) (4.91)

Miscellaneous premium payb 0.32 (0.28) (0.60) (0.64) 0.04

Total $166.61 $117.20 $(49.41) $(63.83) $14.42 a

Other premium pay includes payments above the basic rates for any other premium pay, such as

annual premium pay for regularly scheduled standby duty.

b

Miscellaneous premium pays include staffing differential and remote site allowance pay.

Source: GAO calculations based on OPM data.

Table I.2: Changes in Annual Average Cost of Premium Pays per Employee During Downsizing Due to Changes in Premium

Pays and Comparability and Other Pay Actions
Appendix II

Comments From OPM

Page 52 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing
Appendix III

GAO Contacts and Staff Acknowledgments

Page 53 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing

Michael Brostek, (202) 512-8676

Larry H. Endy, (202) 512-8676

In addition to those named above, Thomas C. Davies Jr., M. Wayne Barrett,

Rebecca L. Shea, and Gregory H. Wilmoth made key contributions to this

report.

GAO Contacts

Acknowledgments
Page 54 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing
Page 55 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing
Page 56 GAO/GGD-99-57 Payroll and Human Capital Changes During Downsizing
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