In our earlier work on studies comparing federal and non-federal pay, we noted how the composition of the federal workforce has changed over the past 30 years, with the need for clerical and blue collar roles diminishing, and the need for professional, administrative, and technical roles increasing. Today’s federal jobs require more advanced skills at higher grade levels than federal jobs in years past. As a result, a key management challenge facing the federal government in an era of fiscal austerity is balancing the size and composition of the federal workforce so it is able to deliver the high quality services that taxpayers demand, within the budgetary realities of what the nation can afford. As we have previously stated, inadequate planning prior to personnel reductions jeopardizes the ability of agencies to carry out their missions. For example, in the wake of extensive federal downsizing in the 1990s— done largely without adequate planning or sufficient consideration of the strategic consequences—agencies faced challenges deploying the right skills when and where they were needed. More recently, this management challenge has been exacerbated by the fact that today’s federal workforce consists of a large number of employees who are eligible for retirement. Various factors affect when individuals actually retire. Some amount of retirement and other forms of attrition can be beneficial because it creates opportunities to bring fresh skills on board and allows organizations to restructure themselves in order to better meet program goals and fiscal realities. But if turnover is not strategically managed and monitored, gaps can develop in an organization’s institutional knowledge and leadership as experienced employees leave. We have previously reported that the needs and missions of individual agencies should determine their approach to workforce planning. GAO-09-632T. Our prior work has shown that strategic human capital management has been a pervasive challenge facing the federal government, and has led to government-wide and agency-specific skills gaps. Our February 2011 update to our high risk list noted that federal strategic human capital management was a high risk area because current and emerging mission critical skills gaps were undermining agencies’ abilities to meet their vital missions. To help close these skills gaps, we reported that actions were needed in three broad areas: planning, to identify the causes of, and solutions for, skills gaps and to identify the steps to implement those solutions; implementation, to put in place corrective actions to narrow skills gaps through talent management and other strategies; and measurement and evaluation, to assess the performance of initiatives to close skills gaps. Since our February 2011 update, OPM, individual agencies, and Congress have taken a number of steps to close mission critical skills gaps, but as we noted in our 2013 High Risk update, additional actions were needed, as our work found that skills gaps were continuing in such areas as cybersecurity, acquisition management, and aviation safety, among others. These actions included reviewing the extent to which new capabilities were needed, in order to give OPM and other agencies greater visibility over government-wide skills gaps so that agencies could take a more coordinated approach to remediating them. OPM agreed that these were important areas for consideration. Since our 2011 High Risk update, OPM’s efforts to address mission critical skill gaps have included establishing the Chief Human Capital Officers Council Working Group in order to identify and mitigate critical skills gaps for both government-wide and agency-specific occupations and competencies. Moreover, the Working Group’s efforts were designated a cross-agency priority goal within the administration’s fiscal year 2013 federal budget; OPM is partnering with the Chief Human Capital Officer’s Council to create a government-wide Human Resources Information Technology strategy that can provide greater visibility to OPM and agencies regarding current and emerging skills gaps. From 2004 to 2012, the non-postal civilian workforce grew from 1.88 million to 2.13 million, an increase of 14 percent, or 258,882 individuals. Most of the total increase (94 percent) was from 2007 through 2012. The number of permanent career executive branch employees grew by 256,718, from about 1.7 million in 2004 to 1.96 million in 2012 (an increase of 15 percent). Of the 24 CFO Act agencies, 13 had more permanent career employees in 2012 than they did in 2004, 10 had fewer, and one agency was unchanged. Three agencies (DOD, DHS, and VA) accounted for 94 percent of the growth between 2004 and 2012. These three agencies employed 62 percent of all executive branch permanent career employees in 2012. A number of factors contributed to the overall growth of the civilian workforce: For example, at DOD, according to agency officials, converting certain positions from military to civilian, as well as the growth of the agency’s acquisition and cybersecurity workforce contributed to this overall increase. At VA, according to agency officials, approximately 80 percent of employees hired from 2004 through 2012 were hired by the Veterans Health Administration (VHA), primarily to meet increased demand for medical and health-related services for military veterans. At DHS, the increase in civilian permanent career employment was due to increased staffing to secure the nation’s borders. Employees in professional or administrative positions account for most of the overall increase in federal civilian employment. For example, the number of employees working in professional positions increased by 97,328 (from 394,981 in 2004 to 492,309 in 2012). This growth accounts for nearly 38 percent of the 256,718 total government-wide increase in permanent career employees during this period. In comparison, employees in administrative positions increased by 153,914 (from 582,509 in 2004 to 736,423 in 2012). This growth accounts for 60 percent of the total government-wide increase during this period. Technical, clerical, blue collar, and other white collar positions accounted for the remaining 2 percent of those full-time permanent positions added from 2004 to 2012. The retirement rate of federal civilian employees rose from 3.2 percent in 2004 to a high of 3.6 percent in 2007 when, according to data from the National Bureau of Economic Research, the recession began. During the recession, the total attrition rate dropped to a low of 2.5 percent in 2009 before rebounding to pre-recession levels in 2011 and 2012. Beginning at the end of 2007, the recession saw retirement rates decline to 3.3 percent in 2008, 2.5 percent in 2009, and 2.7 percent in 2010, before increasing again to 3.5 percent in 2012. With respect to retirement eligibility, of the 1.96 million permanent career employees on board as of September 2012, nearly 270,000 (14 percent) were eligible to retire. By September 2017, nearly 600,000 (31 percent) of on board staff will be eligible to retire. Not all agencies will be equally affected. By 2017, 20 of the 24 CFO Act agencies will have a higher percentage of staff eligible to retire than the current overall average of 31 percent. About 21 percent of DHS staff on board as of September 2012 will be eligible to retire in 2017, while over 42 percent will be eligible to retire at both the Department of Housing and Urban Development (HUD) and the Small Business Administration (SBA). Certain occupations—such as air traffic controllers and those involved in program management—will also have particularly high retirement eligibility rates by 2017. With respect to pay and benefits as measured by each full-time equivalent (FTE) position, total government-wide compensation grew by an average of 1.2 percent per year from 2004 to 2012 ($106,097 to $116,828—about a 10 percent overall increase). Much of this growth was driven by increased cost of personnel benefits, which rose at a rate of 1.9 percent per year (a 16.3 percent increase overall). According to OMB, the government’s contribution to the Federal Employee Health Benefits (FEHB) program rose, on average, 5.2 percent from 2004 to 2011 and 4.7 percent from 2011 to 2012. One study showed that employer contributions for premiums for family insurance coverage nationwide grew by about 58 percent from 2004 through 2012, for an average annual increase of around 5 percent.spending rose at an average annual rate of 1 percent per year (a 7.9 percent increase overall). While government-wide spending on pay and benefits rose slightly, some agencies had significant increases in their spending on compensation per FTE. For example, the Department of State’s spending on pay and benefits per FTE increased by 4.5 percent per year, on average, from 2004 through 2012. In total, government-wide spending on pay and benefits increased by $51 billion, from $193.2 billion to $244.3 billion (an average annual increase of 3 percent and an overall increase of 26.4 percent) from 2004 to 2012. In terms of employee pay per FTE, Spending on pay and benefits as a proportion of the federal discretionary budget remained relatively constant (at about 14 percent) from 2004 to 2010, with slight increases in 2011 and 2012. Specifically, the proportion spent on pay increased by 0.6 percent and the proportion spent on benefits increased by 0.5 percent from 2004 to 2012. According to OMB, a portion of this increase can be attributed to an increase in the growth in federal civilian employment at certain agencies, locality pay adjustments, across-the-board pay increases, and (as previously stated) increases in the government’s share of FEHB program premiums. Government-wide, while the proportion of the discretionary budget spent on compensation remained constant, certain agencies had increases from 2004 to 2012. Three agencies—DOD, DHS, and VA—accounted for 77 percent of the total government-wide increase in compensation from 2004 to 2012, largely due to increased hiring. DOD increased its spending on compensation by $19.9 billion (about 39 percent of the total increase), VA increased its spending by $10.5 billion (about 21 percent of the total increase), and DHS increased its spending by $8.8 billion (about 17 percent of the total increase). With respect to occupational categories,increase in spending on pay from 2004 to 2012 was due to more employees working in professional or administrative positions, which often require specialized knowledge and advanced skills and degrees, and thus, higher pay. Specifically, the percentage of those employees grew from 56 percent of the federal civilian workforce in 2004 to 62 percent in 2012. Even if there had been no change in pay for the occupations, the changing composition of the federal workforce alone would have caused average federal pay to increase from $70,775 in 2004 to $73,229 in 2012, as opposed to the actual 2012 average of $75,947. 48 percent of the overall Appendix I provides more detail on each of our objectives and related findings. While the size of the civilian federal workforce grew moderately during the period of our study, most of this growth was concentrated in a few large agencies and reflects some of our nation’s pressing priorities. The cost of compensating the civilian workforce has remained relatively constant as a percentage of the discretionary budget during the past decade; however, nearly half of the increased pay and benefits costs can be attributed to a shift toward more employees serving in professional and administrative capacities, in jobs that require specialized knowledge and higher levels of education. Although employment levels have grown, large numbers of retirement-eligible employees may be cause for concern among agencies, decision-makers, and other stakeholders, because they could produce mission critical skills gaps if turnover is not strategically managed and monitored. Replacing retiring workers, both in terms of training and hiring costs, and in terms of the largely unquantifiable costs of losing experienced, high- level employees, could be problematic given the era of flat or declining budgets that the government is experiencing. At the same time, retirement-eligible employees present an opportunity for agencies to align their workforces with current and future mission needs. Indeed, as the federal government faces an array of current and future challenges, agencies will be confronted with going beyond simply replacing retiring individuals by engaging in broad, integrated planning and management efforts that will bolster their ability to meet both current and evolving mission requirements. Combined, these challenges underscore the importance of strategic workforce planning and early preparation to help ensure agencies maintain their capacity to carry out their vital functions. Thus, as we have reported in our prior work, agencies should (1) take such key steps as determining the critical skills and competencies that will be needed to achieve current and future programmatic results; (2) develop appropriate talent management strategies to address any gaps in the number, deployment, and alignment of skills; and (3) monitor and evaluate their progress toward their human capital goals. In short, understanding the dynamics of the federal workforce and the drivers of agencies’ compensation costs will help guide decision-making on workforce composition and budgeting. We provided a draft of this report to the Director of OMB and the Director of OPM for their review and comment. In addition, we provided sections of this report to DOD, DHS, and VA. GAO received technical comments on a draft of this report from OMB, OPM, DOD, DHS, and VA, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to OMB, OPM, DOD, DHS, VA, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2757 or goldenkoffr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. To analyze workforce and turnover trends, we used OPM’s Enterprise Human Resources Integration Statistical Data Mart (EHRI-SDM), which contains personnel action and on board data for most federal civilian employees. We analyzed agency-level EHRI data for the 24 Chief Financial Officers (CFO) Act agencies, which represent the major departments (such as the Department of Defense) and most of the executive branch workforce. We analyzed EHRI data starting with fiscal year 2004 because personnel data for DHS (which was formed in 2003 with a mix of new hires and transfers from other agencies) had stabilized by 2004. We selected 2012 as the endpoint because it was the most recent, complete fiscal year of data available during most of our review. We analyzed on board trends for most of the executive branch workforce, including temporary and term limited employees. However, we focused on career permanent employees in our analysis of separation trends, retirement eligibility, and changes in occupational categories and education levels because these employees comprise most of the federal workforce and become eligible to retire with a pension, for which temporary and term limited employees are ineligible. To calculate the number of federal civilian employees, we included all on board staff, regardless of their pay status. In addition, we excluded foreign service workers at the State Department since those employees were not included in OPM data for the years after 2004. We examined on board, attrition, and retirement eligibility trends by agency, occupation, and education level. Occupational categories include Professional, Administrative, Technical, Clerical, Blue Collar, and Other white-collar (PATCO) groupings and are defined by the educational requirements of the occupation and the subject matter and level of difficulty or responsibility of the work assigned. Occupations within each category are defined by OPM and education levels are defined by OPM as the extent of an employee’s educational attainment from an accredited institution. We grouped education levels to reflect categories of degree attainment, such as a bachelor’s or advanced degree. To calculate attrition rates, we added the number of career permanent employees with personnel actions indicating they had separated from federal service (for example, resignations, retirements, terminations, and deaths) and divided that by the 2-year on board average. To calculate retirement eligibility for the next 5 years, we computed the date at which the employee would be eligible for voluntary retirement at an unreduced annuity, using age at hire, years of service, birth date, and retirement plan coverage. We assessed the reliability of the EHRI data through electronic testing to identify missing data, out of range values, and logical inconsistencies. We also reviewed our prior work assessing the reliability of these data and interviewed OPM officials knowledgeable about the data to discuss the data’s accuracy and the steps OPM takes to ensure reliability. On the basis of this assessment, we believe the EHRI data we used are sufficiently reliable for the purpose of this report. To assess the extent to which federal civilian employee compensation has changed as a percentage of total discretionary spending from fiscal year 2004 through 2012, we analyzed discretionary outlays from OMB’s MAX Information System , which captures compensation costs as gross obligations, hereafter referred to as “spending.” We analyzed spending on employee compensation as a ratio of federal discretionary spending (as opposed to other baseline measures, such as total federal spending or gross domestic product) because discretionary spending—that is, spending that is decided upon by Congress each fiscal year through annual appropriations acts—includes personnel costs as well as other operational and program expenses (such as equipment and contracts) that agencies incur to carry out their mission. As a result, the ratio of compensation to discretionary spending enabled us to compare personnel costs to other agency spending. Moreover, using discretionary spending as a baseline allowed us to present this information for both the entire federal government as well as for an individual agency. Obligations data are reported in object classes, which are categories that present obligations by the type of expenditure. We analyzed the object class, “personnel compensation and benefits,” for executive branch agencies in our analysis.and discretionary spending categories when reporting on budget obligations, we used outlays as a proxy for pay and benefits obligations. According to a senior OMB official, this approach is appropriate for pay and benefits spending categories because most (or all) of the budget authority for these categories is obligated in the same year that it is authorized, resulting in similar numbers between outlays and obligations. Because OMB does not distinguish between mandatory We analyzed pay and benefits per full time equivalent (FTE) based on the MAX database designation for FTEs. To assess the reliability of the MAX data, we performed electronic testing and cross-checked it against the numbers reported in the President’s Budget. In addition, we interviewed OMB officials to understand any discrepancies in the data. For example, we met with OMB officials and provided them our initial results to determine whether we were accurately representing spending on pay and benefits. Based on these discussions, we made adjustments to our scope and methodology, as appropriate. Based on our assessment, we believe these data are sufficiently reliable for the purpose of this report. To determine the factors contributing to workforce, turnover, and compensation trends in the civilian workforce from 2004 to 2012, we interviewed officials at the Office of Personnel Management (OPM), Office of Management and Budget (OMB), Department of Defense (DOD), Veterans Administration (VA), and the Department of Homeland Security (DHS). We conducted this performance audit from June 2012 to January 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Robert Goldenkoff, (202) 512-2757 or goldenkoffr@gao.gov. Robert Goldenkoff (Director), Trina Lewis (Assistant Director), and Chelsa Gurkin (Assistant Director) managed this assignment. Jeffrey Schmerling (Analyst-in-Charge) and Wesley Sholtes (Analyst) made key contributions to all aspects of the work. Ben Bolitzer, Sara Daleski, and John Mingus provided assistance with data analysis. Karin Fangman and Sabrina Streagle provided legal support; Robert Gebhart provided key assistance with message development and writing. Robert Robinson provided key assistance with graphics and Rebecca Shea provided methodological assistance.

Summary: Skilled federal workers are critical to the successful operation of government. At the same time, personnel costs for current and former federal civilian employees represented about 26 percent of total discretionary spending in 2012; these personnel costs are outlays from budget authority authorized by appropriations acts. Given the need to control agencies' personnel costs while also maintaining agencies' high performance, a thorough understanding of employment and compensation trends is a critical component of strategic workforce planning. GAO was asked to provide data on federal employment and compensation trends. This report examines (1) employment trends of federal civilian personnel from 2004 to 2012 and some factors that affect these trends, and (2) the extent to which federal civilian employee compensation has changed (as a percentage of total discretionary spending) and some reasons for this change. For this report, GAO analyzed government-wide executive branch civilian personnel data from 2004 to 2012. GAO also interviewed Office of Personnel Management (OPM), Office of Management and Budget (OMB), and other selected agency officials. GAO also reviewed relevant literature, such as studies on attrition. GAO is not making any recommendations in this report. GAO received technical comments on a draft of this report from OMB, OPM, and the Departments of Defense, Homeland Security, and Veterans Affairs; comments were incorporated as appropriate. From 2004 to 2012, the federal non-postal civilian workforce grew by 258,882 employees, from 1.88 million to 2.13 million (14 percent). Permanent career employees accounted for most of the growth, increasing by 256,718 employees, from 1.7 million in 2004 to 1.96 million in 2012 (15 percent). Three agencies--the Departments of Defense (DOD), Homeland Security (DHS), and Veterans Affairs (VA)--accounted for about 94 percent of this increase. At DOD, officials said that converting certain positions from military to civilian, as well as the growth of the agency's acquisition and cybersecurity workforce, contributed to this overall increase. At VA, officials said the increased demand for medical and health-related services for military veterans drove most of the growth in personnel levels. DHS officials said the increase in employment was due in large part to the nation's border security requirements. (In contrast, ten agencies had fewer career permanent employees in 2012 than they did in 2004). Government-wide, most of the increase in employment from 2004 to 2012 occurred within occupational categories that require higher skill and educational levels. These categories include professional occupations (e.g., doctors and scientists), and administrative occupations (e.g., financial and program managers), as opposed to clerical, technical, and blue collar occupations (which remained stable). In terms of turnover, retirement rates remained relatively flat (at around 3.5 percent) from 2004 until the start of the recession in December 2007. Retirement rates fell to a low of around 2.5 percent during the recession in 2009, and then increased to pre-recession rates in 2011 and 2012. With respect to retirement eligibility, of the 1.96 million permanent career employees on board as of September 2012, nearly 270,000 (14 percent) were eligible to retire. By September 2017, nearly 600,000 (around 31 percent) will be eligible to retire, government-wide. Spending on total government-wide compensation for each full-time equivalent (FTE) position grew by an average of 1.2 percent per year, from $106,097 in 2004 to $116,828 in 2012. Much of this growth was driven by increased personnel benefits costs, which rose at a rate of 1.9 percent per year. Other factors included locality pay adjustments, as well as a change in the composition of the federal workforce (with a larger share of employees working in professional or administrative positions, requiring advanced skills and degrees). In terms of employee pay per FTE, spending rose at an average annual rate of 1 percent per year (a 7.9 percent increase overall). However, as a proportion of governmentwide federal discretionary spending, spending on compensation remained constant from 2004 to 2010 (at 14 percent), with slight increases in 2011 and 2012. While the federal civilian workforce grew in size from 2004 to 2012, most of the growth was concentrated in three federal agencies and was driven by the need to address some of the nation's pressing priorities. At the same time--as GAO reported in February 2013--large numbers of retirement-eligible employees in the years ahead may be cause for concern: Their retirement could produce mission critical skills gaps if left unaddressed. As GAO reported in its February 2013 High Risk update, strategic human capital planning that is integrated with broader organizational strategic planning will be essential for ensuring that-- going forward--agenices have the talent, skill, and experience mix they need to cost-effectively execute their mission and program goals.