Human Capital: Agencies Are Using Buyouts and Early Outs with Increasing Frequency to Help Reshape Their Workforces
Published: 2006-03-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Under the Chief Human Capital Officers (CHCO) Act of 2002, an agency may request authority from the Office of Personnel Management (OPM) to offer employees voluntary separation incentive payments (buyouts) and voluntary early retirement (early outs) to help reshape its workforce. GAO was asked to identify (1) how many agencies have been granted authority to offer buyouts and early outs and how often agencies used them, (2) how agencies view OPM's role in facilitating the use of these tools, (3) how agencies have used practices associated with effective use of the tools, and (4) what challenges agencies identified, if any, to continued effective use. To respond, GAO reviewed the practices of the Departments of Agriculture, Commerce, Energy, Health and Human Services, Interior, and the Treasury because they were among the most frequent users of these authorities.
section_title: What GAO Found
paragraphs: The total number of agencies using buyouts and early outs to reshape their workforces has significantly increased from 28 to 51 during fiscal years 2003 through 2005, and the number of programs agencies have offered over the past 3 years has also significantly increased. During this timeframe, at least 22,600 employees have separated from federal service under these authorities. Officials at all six agencies GAO reviewed believe that OPM's mandatory review of and feedback on their plans for using buyouts and early outs has improved implementation. However, nearly all of the agencies said they believe the review at times can be achieved more quickly and should be streamlined. OPM on average took 36 days to review the 28 randomly selected programs GAO assessed at the six agencies. OPM is taking steps to reduce its overall average review time including establishing more stringent timeframes for review and reducing the number of reviewers. The six agencies also reported using almost all of the practices GAO identified as associated with the effective use of buyouts and early outs, and that these practices resulted in better-planned programs. Agencies were not, however, using one practice that involves evaluating the longer-term effectiveness of the buyout and early-out authorities for reshaping their future workforces. Officials at the six agencies suggested that information on how some agencies used effective practices in ways that were particularly successful or instructive in reshaping their workforces could help them improve program results. Agency officials responsible for use of these authorities from the six agencies agreed that certain reforms would help them address some of the challenges they face in implementing their programs. These include (1) increasing the current dollar amount agencies can pay under buyouts to make the programs more attractive to employees and increase the acceptance rate and (2) allowing agencies to make minor changes to buyout and early-out plans after OPM approval. OPM is in the best position to assess these and other possible reforms and ways to achieve them.

section_title: Letter
paragraphs: The federal government’s people—its human capital—are a critical element  to meeting the current and emerging challenges of the 21st century,  including responding to natural emergencies and handling the increased  threat of terrorism, as well as maximizing the government’s performance.   However, fiscal challenges and competing budget needs put pressure on  agencies to make trade-offs and difficult decisions regarding how to invest  in their human capital.  In the past, agencies have often responded to such  financial challenges by using reductions-in-force (RIFs) to their workforces  to meet their budget limitations.  This has caused a loss of institutional  memory and a backlog of work, among other problems.  As a result,  agencies subsequently reported that such mandatory downsizing has  hindered them from carrying out their missions.
Agency RIFs are not, however, the only—and often are not the best— means of addressing reduced agency resources or changing the skill profile  of the workforce to address 21st century challenges.  Agencies may use a  variety of approaches to reshape their workforce to achieve their mission  results with greater economy, efficiency, and effectiveness.  Such  approaches may include merging departments or functions, redeploying  people to different organizational units or locations, conducting training or  retraining programs to improve workforce performance, implementing  recruiting programs for needed skills, and reducing the layers within an  organization’s hierarchy.
The authorities granted by the Congress in the Chief Human Capital  Officers (CHCO) Act of 2002 provided two additional tools agencies may  use to help them reshape their workforces.  Under buyout programs,  agencies offer cash incentives up to $25,000 for employees to voluntarily  leave federal service.  The Act does not, however, provide funding for these  authorities.  Thus, each agency must bear the cost of the incentives.  Under  early-out programs, agencies offer early retirement at reduced annuity  payments to employees age 50 and above with at least 20 years of service or  to employees at any age with at least 25 years of service.  An agency does  not face any costs for offering early outs.
For agencies to use these authorities, the Office of Personnel Management  (OPM) must first review agency plans for using these tools and assure that  the plans comply with certain legislative requirements.  According to OPM  officials who are involved in reviewing agency programs, their reviews are  intended to ensure that agency plans are complete and are linked to the  accomplishment of the agency’s strategic goals.  Within OPM, agency plans  are reviewed by a human capital officer familiar with that agency’s  operations, and four levels of supervision prior to the Director’s official  approval decision.  Agencies have multiple opportunities each year to  request authority to offer buyouts, early outs, or both to meet the specific  reshaping goals of any of their components or organizational units.   Agencies can request authority from OPM to offer programs for either  buyouts, early outs, or for both at the same time.  However, OPM cannot  approve any buyout or combined buyout and early-out request without the  Office of Management and Budget’s (OMB) concurrence, due to the budget  implications for the requesting agency.
To gain a better understanding of the extent to which agencies are using the  buyout and early-out tools authorized by the Act, you asked us to identify  (1) how many agencies have sought and been granted authority to offer  buyouts and early outs, and the extent to which agencies have used these  authorities; (2) how selected agency officials view OPM’s role in facilitating  the use of the buyout and early-out authorities; (3) what practices are  associated with agencies’ effective use of buyouts and early outs, how  selected agencies used these practices, and whether they have helped  agencies to achieve their workforce reshaping goals; and (4) what  challenges the selected agencies identified, if any, to continued effective  use of these authorities.  The agencies we selected were the Departments  of Agriculture (USDA), Commerce (DOC), Energy (DOE), Health and  Human Services (HHS), Interior (DOI), and the Treasury (Treasury),  because we determined from OPM data on agency requests and approvals  that they are the most frequent users of the buyout and early-out  authorities.   The agency selection process was not designed to produce  findings that could be considered representative of the use of these  authorities in the federal government as a whole.
To meet our objectives, we analyzed information from a review of relevant  literature on the use of buyouts and early outs in organizations including  our prior studies of federal buyout programs in 1997 and 1998.  We  obtained and analyzed governmentwide, excluding the Department of  Defense (DOD), data on agencies’ use of buyouts and early outs, and  interviewed officials involved in the approval process from OPM and OMB  on their roles and responsibilities.  We reviewed a sample of OPM case  files for about a tenth of all the offers made by the six selected agencies for  fiscal years 2003 through 2005.  While we cannot generalize the results of  our file review to OPM’s overall program, the results can help us to  illustrate examples of OPM’s review process.  We also conferred with  officials with relevant expertise in the management of human resource  programs from the National Academy of Public Administration and the  International Public Management Association on the reasonableness of the  effective buyout and early-out practices we identified.  Both of these  organizations have published reports on the effectiveness of these federal  human capital practices.  In addition, we interviewed human capital and  program officials from the selected agencies to identify the particular  buyout and early-out practices they were using, how they believe the  practices helped them to achieve their goals, and the lessons learned from  their experiences.  Although we provided each of our six selected agencies  with OPM’s count of their buyout and early-out authorities to review, we  did not independently verify OPM’s governmentwide buyout and early-out  data.  Our review was conducted in accordance with generally accepted  government auditing standards from October 2004 through November  2005.  Appendix I provides additional information on our scope and  methodology.
subsections: section_title: Background
paragraphs: In the past, to help reduce and restructure their workforces, federal  agencies have paid buyouts to employees to voluntarily leave federal  service.  DOD has had buyout authority since January 1993.  Most non- DOD executive branch agencies have had two buyout opportunities.  The  first, under the Federal Workforce Restructuring Act (FWRA) in 1994,  provided these agencies the authority to offer buyouts of as much as  $25,000 to employees to voluntarily leave federal service, thereby  eliminating the need for involuntary staff reductions.  Nearly 40 percent of  the buyouts were paid to those employees in overhead positions such as  personnel, budget, procurement, and accounting.  About 70 percent went to  employees in mid- to upper-level positions in their organizations.  The  second major buyout opportunity was authorized by section 663 of the  Treasury, Postal Service, and General Government Appropriations Act of  1997.  According to Administration officials, the buyouts have had three  distinct purposes.  Initially they were used to help ease reductions in the  DOD civilian workforce following the end of the Cold War.  Later, as part of  the National Performance Review—the Clinton administration’s initiative  to reinvent government—buyouts were used to reduce what the  administration called “management control” positions.  These positions  included those held by managers and supervisors and employees in  personnel, budget, procurement, and accounting occupations.  Lastly, the  buyouts were used to help save money by reducing the federal workforce  as the Congress and the President agreed to pursue a balanced budget.
During the first buyout time frame, the Congress, as well as our own  reports, began expressing concern over agencies’ lack of adequate planning  prior to the implementation of their buyout programs and workforce  reduction initiatives.  The Congress considered this concern in a series of  hearings and addressed the issue when it passed Public Law 104-208 in  September 1996, which directed agencies to prepare strategic buyout plans  for congressional review.  OMB required agencies to first submit their plans  for its review prior to submitting them to the Congress.  In a June 1997  report on effective buyout practices, we found that, overall, the fiscal year  1997 buyout programs at six agencies we examined at that time appeared  to have been better managed than was generally the case governmentwide  during the 1994 and 1995 buyout window.  This was due in large part to  statutory and OMB requirements, as well as OPM guidance.  Together, the  requirements and guidance resulted in more structured programs in which  agencies indicated they used buyouts to accomplish specific objectives and  reportedly would save millions of dollars in the years ahead.
In response to this success, the Congress streamlined the approval process  for agency programs by eliminating congressional and OMB review of  agency plans, although OPM must still consult with OMB on buyout plans.   The CHCO Act of 2002 provided executive branch agencies, with OPM  approval, the authority to offer buyouts and early outs to certain qualifying  employees, for the purposes of workforce reshaping, not just downsizing.   DOD has separate legislative authority to offer buyouts and early outs and  does not require approval of OPM for its programs.  The Act expanded the  buyout and early-out authority to give agencies the flexibility required to  reorganize their workforces should agencies need to substantially reduce  their number of organizational layers, transfer functions, or make other  substantial workforce changes.  As such, the Act’s provisions allow  agencies to reduce managerial or supervisory positions, correct skill  imbalances, and reduce operating costs without the loss of full-time  positions.
Congress specified that each executive agency requesting buyouts, early  outs, or both must submit a plan to OPM outlining its intended use of these  authorities.  OPM also issued regulations to the heads of executive  agencies with information on how to prepare these plans.  OPM review  officials said they approve or disapprove agency requests for the  authorities based on the quality of the plans.  For example, they ensure that  all legislative requirements are met.   OPM reviews each agency’s plan and,  for buyouts only, consults with OMB before final approval is granted.  OMB  assures that the agency has funding for the buyout program and meets the  legislative requirements.  Agencies must have OPM approval before using  buyout and early-out authorities and are required to provide OPM with  interim and final reports on their use.
Agency plans are to describe how they will use buyout and early-out offers  as tools to facilitate agencies’ reshaping goals.  For agencies requesting  buyout or buyout and early-out authority, the plans are also to include  identification of the agency or specified component(s) within the agency  for which the authority is being requested; identification of the specific  functions to be reduced or eliminated; a description of the categories of  employees who will be offered these options identified by organizational  unit, geographic location, occupational series, or grade level; and the time  period during which buyouts may be paid or early outs offered.  Agencies  may request and offer buyout and early-out programs simultaneously for  each of their components and organizational units.
section_title: Almost Half of All Agencies Have Used Buyout and Early-out Programs to Reshape Their Workforces and the Number of Programs Has Increased
paragraphs: Since fiscal year 2003, the number of agencies using buyouts and early outs  to reshape their workforces has increased, and to date, about half of the  executive branch agencies have requested and used these authorities.  In  addition, agencies are more frequently offering buyouts and early outs  together as an additional incentive for employees.  Eight agencies are the  major users of the authorities and represent approximately 70 percent of all  requests.  Agencies’ decisions to use buyouts and early outs are based on  specific workforce planning needs.  In some cases, technological advances  that necessitated a different skill mix primarily drove agency-reshaping  efforts.  In other cases, agencies’ reshaping efforts were driven by a more  diverse set of needs such as consolidation of functions or budgetary  restrictions.  Officials responsible for use of these authorities at our six  selected agencies believe that buyouts and early outs have been successful  tools to help reshape their respective workforces.
subsections: section_title: Total Number of Agencies Using These Authorities and Number of Programs They Offered Has Increased Each Year
paragraphs: Of the approximately 110 executive branch agencies under the CHCO Act,  a total of 51 agencies have been granted authority to offer their employees  programs of buyouts, early outs, or both at least once.  This has increased  from 28 agencies that were granted these authorities in fiscal year 2003.  As  shown in figure 2, OPM approved, and the agencies used, the authorities to  offer programs a total of 136 times, 176 times, and 179 times, respectively,  to help reshape their workforce.  According to OPM data, at least 22,600  employees have separated from federal service under a buyout, early out,  or both.  Among the employees who separated and received a buyout, 59  percent were employees who separated by retiring under the government’s  standard retirement qualifications and did not need an early out, 36 percent  were employees who separated using an early-out program, and 5 percent  were employees who separated through a resignation.
section_title: Agencies Are Offering Combined Buyout and Early-out Programs
paragraphs: In fiscal year 2003, 40 percent of all agency programs offered employees  the opportunities to have a buyout and take an early retirement at the same  time.  In fiscal year 2004 this increased to 55 percent.   In fiscal year 2005  this further increased to 70 percent.  DOI, DOE, and Treasury were  agencies more likely to offer programs with combined buyout and early-out  offers.  For example, in fiscal years 2004 and 2005, DOI combined buyouts  and early outs in 39 of its 42 programs, DOE combined them in 38 of its 45  programs, and Treasury combined them in 14 of its 23 programs.   According to several agency officials responsible for use of these  authorities, employees are more likely to accept early-out offers when they  are combined with buyouts because the buyout’s monetary payment would  help offset the employee’s loss in income and reduced annuity payments.
section_title: Eight Agencies Are Major Users of the Authorities
paragraphs: Over the 3-year period, OPM granted a total of 491 requests from the 51  agencies for buyout, early-out, or both authorities.  As shown in figure 3,  USDA, DOC, DOE, HHS, DOI, DOT, Treasury, and VA represent  approximately 70 percent of granted buyout and early-out programs.
section_title: The Selected Agencies in Our Review Believe the Authorities Have Been Effective Tools in Reshaping Their Workforces
paragraphs: The six agencies in our review based their decisions to use buyouts and  early outs on specific reshaping objectives identified in their particular  agency’s workforce planning process.  For example, HHS consolidated its  human resources (HR) offices from 40 to 5 using the buyout authority to  manage the workforce transition from 1,167 employees to approximately  860.  According to the HHS agency official who led the agency’s HR  consolidation effort, the agency successfully used the buyout authority to  manage the reduction of higher-graded positions and to strategically adjust  its workforce size and skills mix.  The official stated that over 125 of the  estimated 350 staff affected by the agency’s consolidation of its HR offices  accepted buyout offers.  He explained that initially they were able to  redeploy displaced staff to mission-critical occupations and functions;  however as consolidations continued and the balance shifted more and  more away from administrative positions and toward mission-critical  occupations, their ability to absorb and redeploy staff to other  administrative or mission-support jobs diminished.   According to the  official, the buyout program allowed HHS to meet its targets without  requiring a RIF.
In fiscal year 2004, NIST experienced a budget shortfall, new  responsibilities, and changing national priorities for its research and  development.  Because of its budget shortfall, NIST officials anticipated  conducting several RIFs during fiscal year 2004.  NIST’s reshaping goals  were to (1) phase out a major program, (2) reduce funding of another  program, (3) streamline institutional and administrative support, and   (4) shift the focus of some laboratories.  NIST officials reported that they  used a combined buyout and early-out program, reassignments, and RIFs to  help restructure its workforce, achieve a more optimal skills mix, and  reduce its staff from 2,744 employees to 2,556.  NIST officials reported that  while they were unable to totally avoid involuntary reductions, the use of  the buyout and early-out program enabled them to limit the RIFs to a  minimal number of employees.
section_title: Agency Officials Responsible for Use of These Authorities Believe OPM’s Review Process Adds Value but in Some Cases Could Be Quicker and Should Be Streamlined
paragraphs: All of the agencies in our selected sample believe OPM’s feedback during  the review process improved their use of the buyout and early-out  authorities.  OPM approved all agencies’ buyout and early-out requests that  met the statutory and regulatory requirements.   However, according to  program officials in three agencies, OPM’s review process can at times be  quicker so as to avoid possible delays in the approval process that could  limit the success of the programs.  OPM is taking steps to reduce the  amount of time it takes to review agency submissions and is further  planning to streamline its review process.
subsections: section_title: The OPM Review Process Assures Compliance with Legislative Requirements and Provides Help for Agency Officials Responsible for Use of These Authorities
paragraphs: OPM plays the central role in the oversight and implementation of the  buyout and early-out authorities.  OPM regulations, issued under the  authority of the CHCO Act, require agencies to develop plans that provide  information on agencies’ intended buyout and early-out usage.  OPM, in  turn, reviews and approves agency plans for using the authorities.  The Act  and OPM’s regulations also state that OPM will consult with OMB regarding  agency buyout plans.  These plans are to include the following:  Identification of the specific positions to be reduced or eliminated,  identified by organizational unit, geographical location, occupational  series, grade level, and any other factors related to the positions.
A description of the categories of employees who will be offered  incentives, identified by organizational unit, geographic location,  occupational series, grade level, and any other factors, such as skills,  knowledge, or retirement eligibility.
A description of how the agency will operate without the eliminated or  restructured positions and functions.
The time period during which incentives may be paid.
The number of and maximum amounts of Voluntary Incentive Payments  to be offered.
Agencies’ early-out plans are to include the following:  Identification of the agency or specified component(s) for which the  authority is being requested.
Reasons why the agency needs voluntary early retirement authority.
The date on which the agency expects to effect the workforce  reshaping.
The time period during which the agency plans to offer voluntary early  retirement.
According to an OPM reviewing official, the OPM human capital officer  assigned to review a particular agency provides the first level of  examination.  The review process then includes additional management  reviews and the final approval by the OPM Director.  Through this process,  OPM checks to see whether all legislative and regulatory requirements are  met, and that these criteria are being consistently applied across all  agencies’ requests for buyout and early-out authority.  In some cases, OPM  had agencies revise their plans until they met OPM’s standards, according  to an OPM review official.  For example, OPM officials reported they  received an agency request that involved four different components or  work units.  The justifications submitted for each component were in  various states of readiness and covered different time periods.  After  consultation with OPM reviewing officials, the agency elected to withdraw  the request and resubmit them as separate more-targeted requests.  In its  first resubmission, the agency provided a request dealing with reshaping,  business process reengineering, and downsizing of one of the four  components, thus improving the linkage to its business strategy.   This  request received OMB concurrence and was approved by OPM.  Figure 4  illustrates OPM’s review process for agency buyout and early-out requests.
Program officials in each of the agencies in our review believed OPM’s  feedback on their plans was helpful and several reported that they have  modified and improved their plans as a result.  Managers at DOE stated that  the agency has worked closely with OPM to resolve any questions in an  effort to streamline the process.  USDA officials responsible for use of  these authorities stated that OPM has been responsive to their requests and  subsequent inquiries.
section_title: OPM and Agency Officials Responsible for Use of These Authorities Believe Plans Can at Times Be Approved More Quickly and the Process Can Be Streamlined
paragraphs: OPM program officials and nearly all of the agency officials responsible for  use of these authorities in our review believe the approval process can at  times be accomplished more quickly and have fewer steps.   Agencies want  to avoid delaying the timelines for offering a buyout and early-out program,  for fear that shortening the time frame employees have for deciding  whether to accept or decline the buyout or early out can reduce the number  of employees taking them and thus the success of the program.  Both the  quality of the agency request and the number of OPM reviews, as well as  OMB’s review of requests for buyout authority, can affect the cycle time for  final approval.  One agency official stated that he believes a contributing  factor is that too many people have to review each request, a point that  OPM is addressing in its planned streamlining of the review process.
When we looked at a sample of 28 programs between fiscal years 2003 and  2005 for our six selected agencies, we saw a variation in approval times  that ranged from 7 to 88 days.  On average, we found that OPM took 36 days  to review the programs in our sample.  According to OPM and officials  from the selected agencies, a number of variables can affect approval  times, including the experience of the officers (OPM, OMB, and agency)  assigned to the request, the completeness of the agency request, the  complexity of the request, and whether the requests are based on  competitive sourcing situations.
According to OPM program managers, their calculations show that, overall,  their reviews take on average 34 days, but they have set a goal to reduce  this to 21 days.  They established this target by analyzing results of previous  reviews and also from surveying agency program officials.  To help speed  up its review process, OPM issued an application checklist for agencies to  help ensure their plans comply with regulatory requirements prior to  submission to OPM.  According to OPM officials, OPM has expedited its  review process by establishing more-stringent timeframes and standards  for reviewing agency submissions and is developing Web site guidance on  both authorities.  In addition, to further streamline its review process, OPM  plans to reduce the number of reviewers within each review step.  If such  actions are effectively implemented, OPM’s steps to improve cycle time  should help address agency concerns about shortening the windows for  offering buyout and early-out programs.
section_title: Agencies in Our Review Are Using Most of the Practices Associated with Effective Use of Buyouts and Early Outs and Have Found Them Helpful in Achieving Their Reshaping Goals, Though One Practice May Require Further Attention
paragraphs: On the basis of our review of the literature on buyouts and early outs, we  identified seven practices that are associated with effective buyout and  early-out programs.  All of the agency officials responsible for use of these  authorities in our review believe that these practices have been helpful as  they have used most of them to implement their programs.  Of the  identified practices, five are generally reinforced in the provisions of the  CHCO Act and OPM’s regulations for implementing it.  The two practices  not reflected in statutory and OPM documents are (1) consider and adopt  ways to maximize cost savings and (2) establish an evaluation system to  identify and report relevant data on buyout and early-out recipients (see  table 2).
Agency officials responsible for agency use of these authorities reported:  1.
Identifying their reshaping goals up front helped agencies use these  tools to achieve them.
Officials at each of the agencies in our review reported that a first step in  developing buyout and early-out programs is identifying the reshaping  goals of the agency.  They explained that the reshaping goals must align  with organizational strategic goals.  For example, the DOC’s Economics  and Statistics Administration had an organizational strategic goal to  enhance the quality and effectiveness of its economic policy support  function by consolidating two subunits.  The agency in turn developed a  reshaping goal to streamline the offices and eliminate unneeded positions.   In addition, agency program officials determined a decreased need for  traditional clerical skills and decided to also target those positions and  employees for buyouts and early outs.  According to an agency official  responsible for use of these authorities, they met their estimated buyout  and early-out projections and achieved a number of reshaping goals.  They  formed a new organizational structure with increased quality and  efficiencies in policy and administrative support functions, reduced  staffing, and created a more desirable supervisor-to-employee ratio.  2. Considering not only buyouts and early outs, but also a range of  alternative methods to meet reshaping goals helped agencies ensure  success.
Considering not only buyouts and early outs, but also a range of alternative  methods to meet reshaping goals helped agencies ensure success.   Agencies in our review stressed that developing workforce strategies to  meet reshaping goals that consider alternative methods for meeting the  goals, including buyouts and early outs, is important and that they routinely  do so.  They explained that some alternatives work better than others in  certain situations.  For example, one agency official stated that in some  areas the agency may need to strengthen its student programs and build  that particular pipeline of talent and in other skill areas they may need to  redeploy employees to programs in which their skills are better utilized.
USDA’s Agricultural Marketing Service considered alternative methods  such as placement opportunities, hiring freezes, redeployment, retraining,  delaying capital purchases, and suspension of bonuses.  For example, the  agency provided opportunities for some employees to accept a lower grade  position or take on additional duties and responsibilities, which required  on-the-job training.
In addition to offering buyouts or early outs, several of the agencies  considered retraining as part of their reshaping strategies.  However, one  agency official explained that retraining was not always a viable option.   For example, at USDA’s Agricultural Research Service, the new skills  required a specialized academic background.  But the vast majority of the  affected employees was in manual trade positions and did not have the  background necessary to successfully complete a retraining program for  scientific duties.  Thus, the agency could only assign a few of the affected  employees to other positions and used the buyout and early-out programs  for the remaining affected employees.
At Treasury’s Office of the Comptroller of the Currency, agency officials  reported that they established a working group that did extensive cost  analyses to help design its reshaping options.  The group compared costs of  its current field locations and identified: (1) imbalances in its manager-to- employee ratios; (2) a declining volume of work in some areas; and   (3) overstaffing in some district offices, particularly among support  positions and within some information technology units.  The working  group made some assumptions on the number of staff positions needed for  each option and recognized that each would have an effect on employees.   They developed net savings projections for the various realignment  configurations.   The final decisions on the agency’s district structure  resulted in the closure of three district offices and establishment of one  district office in a new location.  As a result, the agency recognized there  were employees with needed skills, but they were in the wrong locations.   In addition to offering buyouts (under its own authority) and early outs, a  number of surplus employees were given the opportunity to transfer with  their function to the new office. 3. Designing buyout and early-out programs that demonstrate a clear  relationship to the agency’s workforce reshaping goals helped agencies  achieve those goals.
Our review of agency buyout and early-out plans submitted to OPM shows  that the plans identified the agency’s workforce reshaping goals and  specified how using the authorities would help meet those goals.  For  example, following an analysis of Treasury’s Bureau of the Public Debt’s  Information Technology (IT) programs, management set the goal of  consolidating most of the bureau’s functions into one existing  organizational unit that would require fewer employees to perform the IT  work.  The bureau established an IT consolidation team, made up of  members of management as well as human resources representatives, to  develop the workforce reshaping strategy.  Team members, for the most  part, were those who would be directly affected by the consolidation.
According to Bureau of the Public Debt officials involved with the  consolidation effort, the bureau used a combined buyout and early-out  program to help reshape its workforce to achieve a more optimal skills mix  and to eliminate the need to use RIFs to cut excess IT positions.  Prior to  offering the buyout and early-out program, the agency’s HR division  surveyed all eligible employees.  From the results of the survey, they were  able to estimate the number of interested employees and also identify  individuals likely to accept an offer.  The agency also decided to make  offers to non-IT individuals working in organizations identified as affected  by the changes to create open positions for surplus IT employees.  Agency  officials reported that they met their goal to consolidate into one existing  organizational unit and also met their targeted number of employees  accepting program offers, which eliminated the need for involuntary  separations. 4. Designing buyout and early-out programs that considered employees’  needs helped them to cope with the changes.
Agency officials responsible for use of these authorities in the agencies we  reviewed pointed out they consider employees’ needs when designing and  implementing programs.  They believed that buyout and early-out programs  should generally provide career guidance, counseling, and outplacement  assistance to employees who may be displaced.  Treasury’s Office of the  Comptroller of the Currency, when offering a buyout and early-out  program, made a wide variety of other services available to employees.    For example, in those offices to be closed Treasury solicited the affected  employees’ relocation preferences and tried to accommodate them to the  extent possible.  Employees who were interested in other positions and  locations could visit the new locations at the agency’s expense.   In  addition, the agency paid relocation bonuses to some affected employees  and instituted a “safe landing” program that consisted of a support network  matching affected employees with “buddies” who provided encouragement  to those employees and served as sounding boards for them, training and  discussion forums that focused on career and stress management, and  technical training to prepare for other job opportunities.
Program officials in these agencies also reported that their programs are  routinely reviewed internally at many levels, including agency general  counsel offices, to ensure that the programs not only conform to applicable  laws, union agreements, and regulations, but also would be considered  equitable from the employees’ point of view.  Officials at USDA’s  Agricultural Research Service reported that in addition to reviewing the  appropriate contracts and regulations, they continuously consulted with  the employee union and its human capital office throughout the duration of  the buyout and early-out program to ensure fairness.  Additionally, the  agency ensured that information packets regarding the proposed programs  were provided to all eligible employees before the date the offers took  effect in an effort to give employees ample time for fullest consideration.    Program officials at USDA’s Natural Resources Conservation Service  reported that their Civil Rights Division conducted a Civil Rights Impact  Analysis to determine if there were any adverse effects on employees and  concluded that there were none, since every employee was offered a  similar position at their current grade level.  None of our selected agencies  reported any grievances filed as a result of their buyout and early-out  programs. 5. Developing a communication strategy early in the process helped to  build an understanding of the purpose of planned changes.
Agency officials in our review stressed that communication early and  throughout the reshaping process was critical.  In a recent report, we said  that creating an effective, ongoing communication strategy is essential to  implementing a merger or transformation.  Communicating often,  accurately, and consistently was the key factor to one agency’s successful  strategy, according to an official responsible for use of the buyout and  early-out authorities.  At NIST, the Director met with staff prior to getting  approval to offer buyouts and early outs, and explained the agency was  facing financial deficits and wanted to avoid the possible need to resort to  involuntary separations, and so was soliciting the authority to offer  voluntary separation incentives.
Other agencies began communicating with employees immediately after  obtaining OPM approval to offer buyouts or early outs.  Treasury’s Office of  the Comptroller of the Currency established an electronic bulletin board  and employees were invited to provide their comments, suggestions, or  recommendations on the agency’s proposed reshaping initiative and  options that the agency’s program officials might want to consider.  A  number of agencies also communicated with employees about the  particulars of their programs through e-mails and brochures to ensure  employees were kept advised of all reshaping actions.  Agency officials also  stressed that having highly visible top management involvement in their  communication strategies helped to deliver the message of organizational  changes as efficiently as possible.  One agency had its managers in the  components and offices targeted for reshaping brief their employees and  attend group information sessions with those employees.  During these  sessions, employees were able to directly ask these managers specific  questions about the reshaping effort, thus helping the employees to  understand management’s rationale for decisions made. 6. Agencies in our review considered ways to maximize cost savings.
Nearly all of the agencies in our review, in an attempt to maximize costs  savings, reported that they tried to separate employees from federal service  early in the fiscal year so as to save on employee salary expenses.   One  agency also assigned affected employees to nonaffected positions where  appropriate.  7. Although they monitor who is accepting buyouts and early outs, the  agencies were not evaluating the continuing and future effectiveness of  these authorities.
Agencies in our review collected and reviewed data on the number of  employees who accept offers under their individual programs compared  with their intended goals.  One agency has a system in place that  periodically generates a report on the numbers of employees who accept  buyout offers, thus providing management with useful information to  consider the progress toward their reshaping goals and make necessary  adjustments.  To monitor the progress and success of its reshaping  initiative, another agency established a consolidation team that met weekly  to discuss issues that emerged as the agency implemented this initiative  and potential roadblocks to achieving its reshaping goals.  The team also  maintains a list of all individuals who separate from the agency with a  buyout and provides this information to the agency’s staff involved in  recruitment and placement to help ensure that previous buyout recipients  repay the full amount of the buyout payment if they are rehired within five  years of receiving the buyout.
However, agencies have not expanded on these monitoring efforts to  provide an evaluation of the longer-term effectiveness of these tools.  For  example, agencies could compare the length of service for employees in its  workforce, the role this factor plays in employee decisions about accepting  buyout and early-out offers, and how this could affect the composition and  timing of future offers.  This information on length of service in relation to  the acceptance or rejection of a buyout or early-out offer could help the  agencies as they plan and prepare for future programs.  In addition,  agencies could perform an analysis to determine the savings generated by  buyouts and early outs relative to other separation strategies, such as  involuntary staff reductions.  Such an analysis would help agencies  determine whether anticipated cost savings of buyouts and early outs will  in fact provide the best choice of resource actions that could be taken.
section_title: Officials in Agencies We Reviewed Suggested Ways to Make the Buyout and Early-out Programs More Efficient and Effective
paragraphs: Agency officials responsible for use of these authorities that we contacted  found the requirement that agencies must get even minor changes to their  plans approved by OPM to be restrictive.  Under OPM regulations, even  slight deviations from approved plans by even one position or grade level  requires additional OPM review.  Officials in three agencies suggested that  agencies be allowed to make such minor deviations, as long as the agencies  do not exceed the total number of approved buyouts or early outs.  For  example, an agency official responsible for use of these authorities from  HHS explained that agencies using the authorities in nearly all cases are  being asked to predict the future because when offering buyouts, the  agency never really knows how many employees will accept the offers, or  where they will be located.  The official explained that agencies target a  group of employees who will be offered the buyouts, and then hope for the  best.  Having the flexibility to adjust the target group to which the offer is  made during the implementation of their plans could improve program  results and ultimately provide additional opportunity for agencies to  achieve their reshaping goals, according to this manager.  OPM officials  said that they believe that the CHCO Act does not provide OPM the  authority to allow agencies to make changes to approved plans.
Furthermore, agency officials responsible for use of these authorities in  our review believe that the buyout maximum payment amount of $25,000,  which has been constant since 1992, may not be enough incentive to  encourage eligible workers to voluntarily leave the workforce, especially  higher-salaried employees.  They explained that inflation has eroded the  buying power and value of buyouts, making them less attractive unless the  employee is ready to retire anyhow, thus defeating the purpose of the  program.   Officials in four agencies said some consideration should be  given to ways to make buyouts more attractive to employees.  On the other  hand, one agency official acknowledged that increasing the buyout amount  may reduce the number of offers agencies could make at a higher amount  and thus could make alternative approaches to reshaping more attractive.   Although they have not undertaken any studies regarding this, OPM  officials believe that agencies’ reporting that they are meeting their  targeted number of reductions indicates the dollar amount is sufficient.
In addition, some agency officials suggested that more coordination across  the agencies using the programs would be helpful as would the sharing of  examples of how some agencies used effective practices in ways that were  particularly successful or instructive in reshaping their workforces, and  that OPM may be in the best position to do this coordination.  For example,  several program officials suggested that OPM could sponsor forums, an  interagency working group, or even additional training sessions, such as  the session OPM headquarters offered in May 2005, to encourage  information sharing on how agencies may more efficiently implement their  buyout and early-out programs.
A number of the agency suggestions for improving the outcomes achieved  with the buyout and early-out programs would benefit all agencies using  the authorities, but some would require legislative changes.  OPM, as the  central human capital office, is well positioned to determine which  governmentwide improvements to pursue and how to implement them,  including regulatory changes or proposals for legislative reform.  For  example, OPM may assess the effects of raising the $25,000 buyout amount  and, if appropriate, sponsor legislative proposals for these changes.
section_title: Conclusions
paragraphs: As agencies transform to better meet 21st century challenges and changing  missions, they are increasingly recognizing the need to reshape their  workforces to meet these challenges.  The Congress also recognized this  need and responded to it by designing legislation creating buyout and early- out programs as additional tools agencies could consider using in their  efforts to reshape their workforces.  Our review shows that agencies have  taken advantage of these programs and are employing certain practices  that help them to use these tools more effectively.
Now agencies and OPM, working through each agency’s CHCO, have the  opportunity to make even better use of these authorities and best practices.   Several agencies we reviewed have formulated ideas about how to improve  them.  OPM and the CHCOs, through their governmentwide Council, could  provide an important service by sharing information with agencies on  successful ways to use the tools and the lessons learned across agencies,  and helping agencies determine what data to collect and evaluate as  indicators of the program’s results.  Currently, the individual agencies in  our review have not systematically evaluated the relative efficiency,  continuing effectiveness, and future viability of the authorities as reshaping  tools for their agencies.  By doing so, agencies will know whether they need  to make adjustments in their long-term strategy for employing those tools,  and whether it is more cost-efficient to spend funds on implementing  buyouts and early outs rather than on other reshaping tools, such as  retraining.  Finally, because OPM takes a governmentwide perspective on  human capital programs, it is well positioned to assess potential  improvements to these authorities, such as the agencies proposed changes,  and determine what changes to implement and the steps needed to do so.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that agencies can take full advantage of the authorities to  use buyouts and early outs to reshape their workforces, we recommend  that the Director of OPM, in conjunction with the CHCO Council, take the  following actions. 1.  Share additional information with agencies on examples of how  agencies have used practices associated with effective use of buyout and  early-out programs to support their programs and achieve successful  results.  In addition, OPM could support the improvement of approval cycle  time and the effectiveness of the programs by facilitating information  sharing among agencies, such as holding forums and training sessions on  the use of the authorities for agencies with less-experienced staff. 2. Help agencies identify ways they can determine the extent to which the  authorities have been effective tools and will continue to be in the future,  and how agencies may need to tailor their reshaping strategies accordingly.  3.  Assess potential program improvements, such as those the agencies  have identified, for possible governmentwide implementation, then take  the steps necessary to accomplish this, such as changing the regulations  governing the program, or proposing any needed statutory changes.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Director of OPM.  The Director  provided written comments, which are included in appendix II.  The  Director agreed with our recommendations, as well as our conclusion that  buyouts and early outs have been effective tools for agencies implementing  workforce reshaping plans.  The Director also stated that the agency- specific examples included in our report provide additional insight on the  usefulness of buyouts and early outs as proven workforce reshaping  options, and will help agencies to emulate best practices as they manage  their own restructuring plans.  In addition, the Director of OPM agreed that,  working with the CHCO Council, the agency could provide an important  service by sharing information on such successful ways to use the tools and  the lessons learned across agencies.  Furthermore, the Director stated that  the examples will help as OPM actively works with agencies to determine  what data to collect and evaluate as indicators of the program’s results in  an effort to measure the effectiveness of their buyout and early-out  programs.  Once OPM reviews agencies’ actual experiences using these  two tools, it will be able to consider whether changes are needed to  improve their effectiveness.  The Director of OPM also agreed that its  review of agency plans could be done more quickly and stated that it is  expediting approval of agencies’ buyout and early-out requests.
The Director of OPM also provided technical comments, which we  incorporated as appropriate.
We are sending copies of this report to other interested congressional  parties, the Director of OPM, and the federal agencies and offices discussed  in this report.  In addition, we will make copies available to other interested  parties upon request.  This report will also be made available at no charge  on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at (202) 512- 6510 or at larencee@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report.  Key contributors to this report include William Doherty,  Clifton G. Douglas Jr., Charlesetta Bailey, Tom Beall, Andrew Edelson,  Jeffrey McDermott, Amy Rosewarne, and Lou Smith.
section_title: Objectives, Scope, and Methodology
paragraphs: The objectives of our review were to identify  how many agencies have sought and been granted authority to offer  buyouts and early outs and the extent to which agencies have used these  authorities;  how selected agency officials view the Office of Personnel  Management’s (OPM) role in facilitating the use of the buyout and early- out authorities;  what practices are associated with agencies’ effective use of buyouts  and early outs, how selected agencies used these practices, and whether  they have helped agencies to achieve their workforce reshaping goals;  and  what challenges the selected agencies identified, if any, to continued  effective use of these authorities.
To address our first objective, we obtained and analyzed OPM data on the  buyout and early-out programs authorized under the Chief Human Capital  Officers Act of 2002 to obtain governmentwide data on agencies’ use of the  program and to help identify agencies for further review.
To address our other objectives, we reviewed the OPM data to identify  those federal agencies that were the most frequent users of the buyout and  early-out authorities under the Act.  We selected the Departments of  Agriculture, Commerce, Energy, Health and Human Services, Interior, and  the Treasury for further review since they accounted for over half of all  requests for authorities at the time we started our review.
We interviewed agency officials, such as human capital officers and buyout  and early-out program managers from the six selected agencies to ascertain  (1) their views of OPM’s role in their use of the buyout and early-out  authorities, (2) the particular buyout and early-out practices they were  using, (3) their views on how the practices helped them to achieve their  goals, (4) the lessons learned from their experiences, and (5) the challenges  to continued successful use of these authorities.  As part of this review, we  also asked officials to identify and discuss more specifically either a buyout  or early-out offer in each of fiscal years 2003, 2004, and 2005 that, in their  view, was among the most successful of such offers conducted that year.
In addition, using a systematic selection procedure with a random start, we  reviewed a sample of OPM case files for about a tenth of all the offers made  by the six selected agencies for fiscal years 2003 through 2005.  We  reviewed the files to determine the length of OPM’s review time and also to  identify instances where agencies used practices associated with effective  buyout and early-out use.  While our total sample of cases consisted of 40  buyout or early-out offers, we excluded 7 cases from our analysis of OPM’s  review time because in these cases, the agencies requested buyouts or  early outs on the assumption that they would possibly use contractors to  conduct some of the agencies’ work.  OPM could not approve the offers,  however, until the agencies made these final outsourcing decisions.  In  addition, we excluded 5 cases from this analysis because either OPM’s  review of the case was pending or we were unable to identify the agency  date of the submission or OPM’s date of approval from the file.  To  supplement and support the views provided by agency officials, our review  also included obtaining and examining available documentation, such as  strategic workforce plans, buyout and early-out plans, and other  documents associated with the use of the authorities from each of our  selected agencies.
We also interviewed officials involved in the review process from OPM and  the Office of Management and Budget to obtain information on their roles  and responsibilities in approving agency requests and their perspectives on  the use of buyout or early-out offers governmentwide.  In addressing our  third objective, we first reviewed information from relevant literature on  the use of buyouts and early outs in organizations including our prior  studies of federal buyout programs in 1997 and 1998.  We conducted a  content analysis and included as effective practices those common to  multiple sources and those previously cited in GAO reports.  We next  conferred on the reasonableness of selected buyout and early-out practices  we identified with officials from the National Academy of Public  Administration and the International Public Management Association who  had relevant expertise in the management of human resource programs.   Both of these organizations have published reports on the effectiveness of  federal human capital practices related to buyout and early-out programs.
Because we designed our selection of agencies and cases to examine the  experiences, practices, and perspectives of a set of agencies that, in recent  years, have been relatively more engaged in conducting buyout and early- out programs, the findings are not generalizable to other agencies or the  federal government as a whole.  To assess the reliability of OPM’s database  on buyout and early-out authorities, we interviewed the officials at OPM  who were knowledgeable about maintaining that database.  In addition, we  provided each of our six selected agencies with OPM’s count of their  buyout and early-out authorities to review.  We determined that OPM’s data  were sufficiently reliable for the purpose of providing general information  on the number of agencies participating in buyouts and early outs over time  and the number and nature of authorities that these agencies used.  Our  review was conducted in accordance with generally accepted government  auditing standards from October 2004 through November 2005.