Targeting Middle Managers
hat set the Clinton Administration's National Performance Review apart from previous federal reform efforts was its earnest bureaucrat-friendliness.
Vice President Al Gore's team, distancing itself from the abortive reforms of the Carter and Reagan eras, operated from the premise that convoluted systems of government, not individual bureaucrats were the source of waste and inefficiency.
"Our bedrock premise is that ineffective government is not the fault of the people in it." Gore said last summer. "Our government is full of well-intentioned, hard-working, intelligent people -- managers and staff."
But in Washington, as in Hollywood, every saga must have its heroes and villains -- not systems or concepts, but real live people. So last fall, the Clinton Administration started fitting executive-branch employees for white hats and black hats. The good guys, the Administration concluded, are at the bottom and the top of the federal workforce: the front-line workers who struggle against the rule-encrusted system to deliver services, and the political appointees fighting to reinvent government who are at least in theory, more directly accountable to its taxpaying customers.
In between are the bad guys: nearly 700,000 mid- and upper-level career managers and overseers.
Last October, when Administration officials trooped to Capitol Hill to try to sell the NPR's initial round of legislative proposals, they talked less about systems reform and more about getting rid of 12 percent of the government's civilian employees -- 252,000 jobs -- by cutting layers of management. Rhetorically, managers were transformed from struggling civil servants to paper pushing, rule-obsessed stewards of the government's arcane rules and regulations - "the administrators of red tape," in the words of one NPR official.
It was a rude welcoming to downsizing, '90s-style. Private-sector middle managers have already felt the pinch. Earlier this year, an American Management Association survey revealed that although middle managers made up less than 8 percent of the workforce, they accounted for 19 percent of staff cuts made by 8,000 companies between July 1992 and June 1993.
Now it's the feds' turn. On Sept. 11, shortly after the NPR report was released, Clinton sent all agency heads a memo telling them to prepare streamlining plans by Dec. 1, "consistent with the National Performance Review's recommendation to reduce the executive branch civilian workforce by 252,000." Each agency's plan, said Clinton, should address "the means by which it will reduce the ratio of managers and supervisors to other personnel, with a goal of . . . halving the current ratio within five years." The memo did not say how much of the overall job cuts each agency would bear.
Late last year, Congress failed to provide what the Administration regarded as its main downsizing tool: targeted, $ 25,000 buyouts to entice managers and supervisors to leave government voluntarily. But even if a buyout plan is eventually approved, Clinton's memo speaks only to reducing the number of managers and supervisors. It doesn't say anything about cutting layers of management, which may remain even if the overall ratios are reduced. Unless the layers are eliminated along with the people, say public administration experts, flexibility, accountability and creativity in government will remain elusive goals.
Cuts and Ratios
The had news for federal managers is that practically everybody thinks it's a good idea to cut their ranks.
In their book Improving Government Performance (Brookings, 1993), public administration theorists John J. Dilulio, Gerald Garvey and Donald F. Kettl argue that government organizations were designed with multiple layers of management for two reasons: to lighten supervisors' load by reducing the number of subordinates they have to supervise, and to provide multiple points of contact for information on whether top-level initiatives were actually being implemented at the bottom.
Now, the authors contend, "Senior managers are discovering that they can use management information systems instead of pyramids of fact finders to acquire and transmit information.
Agency executives echo that argument. "I think a lot of management structures in government are built on the premise that you needed a richer mix of managers because you didn't have reliable data," says Michael Dolan, deputy commissioner of the Internal Revenue Service. "You were on cycles that were weeks and months old, so you were dependent on managers who were actually touching the work."
"Government-wide, there are far more supervisors than we need," says Robert Stone, project director of the National Performance Review and former assistant secretary of Defense for installations. "We had 200 federal managers working on the NPR, and every one of them knew that."
Using Office of Personnel Management data, the NPR team concluded that executive branch agencies averaged one manager or supervisor for every seven employees (see box at right). The private-sector average, says the report, is 1:15. Hence Clinton's order to cut the federal ratio in half over five years.
Even that may not be enough, argues Gore. "If you look at the high-performing companies in the private sector," he told Government Executive last fall, "typically the manager-to-employee ratio is much larger than 1:15. In some cases we found companies that were among the highest performing companies in the world where the ratio was as high as 1:75."
There's no guarantee, though, that cutting 252,000 federal jobs will result in the kind of supervisor-employee ratio the Administration wants. The Clinton White House has provided only sketchy information to agencies on where the cuts should come from.
Early last year, when President Clinton first proposed cutting 100,000 jobs, he directed that 10 percent of the cuts come from the Senior Executive Service and the GS-14 and GS-15 ranks. No such guidance was issued when another 152,000 cuts were added as a result of the NPR. Indeed, as of late last year, the Administration had still not said how the second round of cuts would be apportioned among the agencies.
The lack of guidance is part of a deliberate effort to decentralize federal management, say Office of Management and Budget officials. They want agencies to figure out for themselves how much they can contribute to the Administration's overall job-cut goals. Late in the year, agency budget officials were engaged in back-and-forth negotiations with OMB about how much each should cut in preparation for the fiscal 1995 budget submission, due next month.
What is clear, according to internal NPR documents, is that the Administration wants to get rid of roughly 140,000 supervisors, managers and SESers (see "The Ayers Memorandum"). Then it wants to eliminate an additional 112,000 non-managerial jobs in what the NPR calls "administrative control" functions: personnel, budget, audit, acquisition and headquarters. That adds up to the 252,000 in total cuts.
How did the Administration settle on these numbers? Testifying before a House subcommittee last fall, OPM officials said they didn't know where the figure came from. Here's Stone's explanation:
"We made a head count government-wide of supervisors, budget specialists, financial specialists, procurement specialists, personnel specialists and headquarters people, plus regional offices. The total count was -- I think the report says 690,000. We have a little later count that's about 670,00. We said, 'This is twice as big as it ought to be.'
"But if you cut that group in half, you have to substitute for them -- for example, groups that measure progress, that set goals. So you can't just cut 335,000. The judgment was that maybe a quarter of what you cut out you ought to put back to perform these other functions. So half of the control and micromanagement force is 335,000, a quarter of the 335,000 is about 85,000 or 83,000. That leaves you at about 252,000. That's roughly the arithmetic."
Layers, Not Numbers
Mathematical gymnastics notwithstanding, Stone insists the performance review "was not a numbers drill." (He also says it's sheer coincidence that cutting 252,000 jobs would enable the Administration to declare that it reduce federal employment below two million for the first time in decades.) But the Administration is clearly obsessed with the twin numbers of job cuts and manager-employee ratios, to the dismay of some observers.
"The challenge is to reinvent and restructure, not to achieve a certain supervisory ratio," says Bruce Moyer, executive director of the Federal Managers Association.
The Administration's approach is like a crash diet, says Paul Light of the University of Minnesota's Humphrey Institute of Public Affairs. "You can take off a lot of weight through a reduction in managers, but not reduce the number of layers," he says.
Light argues that it's hard to tell exactly what the span of control -- that is, the number of people each manager actually supervises -- is in government. The Administration is "using the term 'span of control' as if organizational boxes and charts showed a 1:7 ratio," says Light. "But there is no good organizational chart of government." Light is trying to create one by studying federal employment directories to see how the people listed in them sort into layers -- as many as 60 tiers in some of the Cabinet departments, he says.
The trick, says Light, is to get rid of the jobs, not just the people. He'd start with what he calls "alter-ego deputies," those whose principal function is to do the job of the head of a department, agency or branch when he or she isn't around. "In 1960, we didn't have associate deputy undersecretaries," says Light. "We didn't have assistant deputy assistant IGs."
Eliminating such positions, he says, would eliminate 100,000 jobs.
The problem is that many "alter-ego deputies" are politically appointed. The National Performance Review said nothing about eliminating political layers of management, even though previous reform efforts, such as Paul Volcker's National Commission on the Public Service, had recommended cutting the number of politically appointed officials in half.
But, says Stone, the government has only about 3,000 political appointees to manage millions of federal workers. "That's not what's wrong with the federal government," he argues.
"I used to think that was true," says Light. "But when you find out that those 3,000 appointees sort into 20 to 30 layers between the President and the career service, you begin to wonder if you can do something about the layers in the middle without doing something about the layers at the top."
The $ 25,000 Solution
Whether or not agencies de-layer, they have to get rid of 252,000 jobs. With federal attrition rates hovering at about 3 percent -- down from a high of nearly 9 percent in the mid-1980s -- mere turnover isn't going to do the job.
That's why last fall the Administration proposed legislation to offer buyouts of up to $ 25,000 to federal employees who agreed to resign or retire voluntarily during a 90-day window in fiscal 1994. The Administration said agencies would be directed to target the buyouts at managers and supervisors, and estimated that between 60,000 and 100,000 such officials would accept the offer.
Both the Defense Department and the Postal Service have reported success in using buyouts in recent years. In 1992, more than 18,000 postal employees grabbed early-retirement packages featuring bonuses equal to six months' salary. Last year at DoD, 30,000 of the 70,000 civilians who left their jobs took $ 25,000 early retirement bonuses. That meant only about 3,000 civilians had to be laid off to meet the department's downsizing goals.
The problem with such buyout plans, of course, is finding a way to pay for them -- and for the added costs of benefits for new retirees.
OMB officials argued that the Administration's government-wide buyout proposal would be budget-neutral. (It would have to be, or else it would violate "pay-as-you-go" budget restrictions.) Agencies, OMB said, would simply reduce spending in other areas to pay for the buyouts and the benefits -- despite the fact that they'll be operating under a "hard freeze" on discretionary spending as a result of last summer's budget agreement.
The Congressional Budget Office refused to buy OMB's logic. Instead, CBO calculated that the buyouts would actually cost agencies $ 519 million over five years. This didn't dissuade House and Senate committees from approving buyout legislation, but it led Senate leaders to take the buyout bill off the end-of-term Senate calendar, effectively killing the measure for 1993. As this issue of Government Executive went to press, it was unclear whether the Administration would try again for the buyouts next year.
Meanwhile, Members of Congress eyed the potential $ 30 billion in savings from trimming 252,000 federal jobs without the aid of buyouts and tried to earmark the money for unemployment insurance, anticrime legislation and other priorities.
The Administration played the game, too. In late November, OMB lumped the job-cut money in with a few billion dollars of other NPR-related cuts in a $ 37-billion, last-ditch budget-cutting package. The House approved that package, and the Senate is slated to take it up this month.
If Congress votes to write the job reductions into law, the employees will have to go -- if not voluntarily, then through reductions-in-force. "There is no doubt that RIFs would be unavoidable without voluntary separation [incentives]," said OPM director Jim King last October.
Unless the Administration can craft some budget-neutral buyout package, "they're going to be firing people come February," predicts a congressional aide.
At the Agencies
It wasn't just the cost of the buyout idea that bothered some Members of Congress. "I am concerned that the proposal . . . is insufficiently connected to any clear plan for implementing the 'reinvention' of the federal government," said Sen. William Roth, R-Del., ranking member of the Senate Governmental Affairs Committee, last fall. "At the very least, it seems to come to us too early in the proper sequencing of reforms."
When the Administration proposed the buyouts, agencies were just starting the reinvention process that presumably will result in job reductions. At the same time, during discussions with OMB late last year, many agency budget offices were working overtime trying to dodge the job-cut axe.
The Internal Revenue Service, for example, is loathe to cut staff, because the agency is already straining under a rapidly growing workload. In the last five years, the gap between income taxes paid and those due has grown from $ 88 billion to $ 118 billion, and the amount of outstanding tax debts that the agency entertains any hope of collecting has doubled, to about $ 27 billion.
Nevertheless, to meet the Administration's initial goal of eliminating 100,000 jobs government-wide, the IRS will be cutting nearly 5,000 of its 116,000 jobs through attrition over the next three years. IRS officials hope they will be exempted from further workforce cuts, in the managerial ranks or elsewhere. If the agency simply slashed middle managers, says Dolan, "we'd be in the ditch quicker than you could blink."
The agency's argument should fly. "I suspect there will not be cuts [at the IRS]," OMB director Leon Panetta told a House Ways and Means Subcommittee last fall.
Even without cutting overall employment, IRS officials say, they will reduce management layers by shifting positions to the front lines. By the end of fiscal 1995, the IRS plans to move 2,000 management and "overhead" positions out of headquarters and regional offices to direct service positions in districts. Much of the shift will be accomplished through attrition.
In its reorganization, the IRS also plans to eliminate half of its regional processing centers, leaving five. The other five will remain open as customer service centers, but with smaller staffs.
At the Department of Housing and Urban Development, Secretary Henry Cisneros has pledged to eliminate the department's 10 regional offices entirely, leaving no layers between the department's Washington headquarters and its 73 field offices.
The move, slated to occur over five years, would eliminate the jobs of more than 4,000 of HUD's 13,500 employees. None will be RIFed, Cisneros has said. Some will be transferred to the field offices, and the agency hopes to offer early retirement packages to others.
Can It Be Done?
While IRS and HUD move ahead, other agencies have barely begun their efforts to cut people and layers. Will they be able to give President Clinton what he wants?
If all he really wants is just 252,000 fewer employees, the answer is yes.
"I think they'll hit the mark," concedes a leader of a managers' association. "The 252,000 will be something they will have the numbers to be able to say they've achieved."
Indeed, it's increasingly clear that the bulk of the cuts will come from just a few agencies. DoD, for example, is reportedly slated to cut 160,000 positions by 1999, meaning that it alone could account for more than 60 percent of the Administration's total projected job cuts. But reducing layers of management is a different story. The Administration's projections of 252,000 in cuts aren't based on any rigorous analysis of agencies' needs, but rather on a collective gut feeling on the part of the NPR staff that half of government's managers and overseers are superfluous.
Even if you accept that premise, and even if you can offer buyouts, it's hard to get the right people to leave. In the Postal Service, the group of 48,000 employees who accepted its early-retirement offer included fewer than 14,000 managers. The rest were experienced letter carriers, mail handlers and postmasters. In connection with the buyouts, Postmaster General Marvin Runyon said a year and a half ago that he would eliminate 30,000 managerial and other "overhead" jobs; late last year, he still had 7,000 jobs to go to meet that goal.
Likewise, while DoD has exceeded its targets for reducing civilian employment -- the 1993 target was 966,000 and the department had 937,000 employees at the end of the year -- DoD officials have no idea how the reductions have affected spans of control. "To the extent that we have closed or reduced organizations that had high-grade employees or too much overhead in supervisory structure, [the high-grade employees] have been offered incentives and they're gone," says Ronald Sanders, director of civilian personnel policy at DoD. "But we have not offered incentives with the express purpose of reducing the number of supervisors in the department."
DoD is gathering data on how its reductions have affected management layering, but "I wouldn't expect much there," Sanders says. "Most of these incentives have been targeted at blue-collar workers rather than white collar. In our blue-collar ranks, the supervisory span of control is pretty good."
Even in the government's white-collar ranks, the span of control varies greatly from department to department, agency to agency and bureau to bureau. And simple managerial ratios often don't tell the whole story. Take the Department of Energy, whose supervisor-employee ratio of 1:4.81 is the lowest of the major agencies or departments, according to OPM. But most of those supervisors oversee not just other DOE employees, but some of the 150,000 contract employees the agency hires to manage its nuclear-weapons facilities. For years, the General Accounting Office has documented DOE's inability to effectively manage its contractors. Even Gore and Stone concede that the last thing Energy needs is to slash its management ranks.
That's the problem with a blanket order to cut jobs and reduce ratios, say federal career executives. "The biggest frustration in all this," says Carol Bonosaro, president of the Senior Executives Association, "is that it was not a mission-related decision. Our hope had been that the NPR was going to do a program-by-program review that would say, 'Here are 45 Agriculture programs that can be phased out, and here are the accompanying resources that can therefore be dropped.'"
Instead, under its decentralized management approach, the Administration has simply told agencies they must cut managers and left it up to them to figure out how to get their work done. It's a challenge they don't take lightly.
"People sometimes treat reductions in management as a no-brainer exercise where you just go out and carve out the middle of an organization," says the IRS's Dolan. "If you go at it that way, you're going to get a disastrous result."
Just who is on the chopping block in the Administration's plan to cut the government's white-collar workforce by 252,000? Under what circumstances, and when, are they supposed to leave?
For weeks after the National Performance Review was released, answers to these questions, if they existed at all, remained shrouded in mystery.
But the picture became clearer in mid-December, when Government Executive obtained an NPR staff explanation of the job-cut proposal. The Dec. 6 memorandum by NPR staffer John Ayers of the Peace Corps describes in detail the "reasoning behind our recommendations to streamline certain areas of our government."
The memorandum addressed to NPR project director Robert Stone, begins with good-news talking points. "A point worth making early and often is that the 252,000 position reductions are not an end in themselves, but result from system and management changes recommended by NPR," it says. "Another point that merits repeating is that the attack on the central control structures is not an attack on the employees. The people who occupy the targeted positions are often the best and brightest in government. For this reason we strongly recommended that training and transfer opportunities must be made available . . ."
The NPR staff, the memo shows, divided targeted positions into two categories; jobs in management, and jobs in "administrative control structures." A table attached to Ayers memo lists 278,458 people in the category of "Supervisors, Managers & SES." Another 382,907 positions are listed in five administrative support categories.
The memo makes it clear that managers will be the first out the door.
"Cuts in specialist positions like personnel, budget, audit and procurement should be in part conditional on regulatory and legislative relief from excessive controls," the memo says. "No one is expected to have to perform the work of those who leave the central control structures." Agency plans, the memo said, should "reflect the need for legislative change" and "clearly identify where cuts cannot be made until legislative remedies are passed." In contrast, the memo says, "the reduction in managers [is] not tied as directly to the need for regulatory relief. Agencies have latitude in how they manage their staff; regulations do not specify a span of control, or the existence and specific role of managers. Therefore, the first wave of reductions are anticipated to be among the management ranks."
Moreover, some 55 percent of the reductions -- or 140,000 jobs -- are supposed to come from the management ranks "as the span of control increases from 7 employees to 15 employees per manager," Ayers writes. The cuts are to come over five years, but, the memo says, "We feel that front-loading the reductions is very important. The quote from General Electric, 'We found that downsizing had to precede empowerment . . .' summarizes much of the expert advice we received over the past few months."
The memo makes it clear that the buyout legislation currently stalled in Congress is viewed as key to making the reductions. The strategy, the memo says, should be to offer the buyouts "across the board and not just to staff in the targeted positions. The reason is that the targeted pool of approximately 700,000 positions could not be significantly reduced without RIFs. Our plan is to encourage voluntary separations using buyouts with a migration of staff from the targeted positions to line positions as vacancies occur. In this way there would be a one-way flow of staff from the targeted pool to the line or by separation from government service."