Paid to Leave

ate last summer, the Army Materiel Command was looking at massive civilian layoffs. After surveying all of its installations, headquarters realized that 12,000 more civilians were on the payroll than the budget would allow in the upcoming year. The command quickly tried a variety of tactics for reducing its 89,000-person civilian staff, including a hiring freeze. But they weren't enough.

Fearing it would go broke if it did not lay off 6,400 people, the command in February asked the Defense Department for permission to issue reduction-in-force notices.

But newly installed Defense Secretary Les Aspin denied the request.

He asked the command's managers to put their faith in a new program, passed as part of the fiscal 1993 defense authorization act, that provides for voluntary civilian separation incentives. The program, which took effect last January, allows DoD managers to offer lump-sum cash payments of up to $ 25,000 to civilian employees in "surplus skill" categories who volunteer to leave DoD.

Relying on the bonuses to entice enough people to leave made Materiel Command officials nervous, admits Mike Edwards, chief of the transition and employee services division. "We were quite concerned that we were faced with not enough money in the bank, and we needed people off the payrolls by June," he says. Nevertheless, as Aspin requested, this spring the command gave employees 30 days to consider the bonus option. Within weeks, 5,600 people accepted the offer. With that breathing room, Edwards says, "It is safe to say that we won't have any RIF notices this year."

Bonus Beginning

The idea for separation bonuses arose soon after the disintegration of the Warsaw Pact, when Congress and the President agreed to reduce the military by 25 percent by 1995. Faced with having to cut active uniformed personnel from 2.2 million in 1989 to 1.6 million in 1994, Pentagon planners asked for alternatives to large-scale layoffs. They insisted that personnel who had volunteered to serve their country and had demonstrated their loyalty through significant time commitments deserved better than to be fired.

They convinced Congress to act on an idea borrowed from the private sector: Instead of firing people, give them a cash incentive to resign. Not only does the plan cause less pain to employees, but it cuts expenses associated with layoffs, like unemployment insurance and retraining, and therefore is often budget-neutral. The separation incentives for uniformed personnel went into place at the beginning of 1992.

But, of course, it wasn't only the uniformed side of DoD that needed to be cut. The civilian side had to come down by about 230,000 as well. In September of 1989, DoD employed 1,117,000 civilians. By September of 1997, according to the last congressional mandate, that number must be brought down to 888,000, and it's quite likely that President Clinton will decide to cut even more. As of March 31, 1993, 978,000 civilians were still on board. So far, most of the shrinkage is the result of a hiring freeze combined with attrition, though the downsizing has also forced DoD to RIF about 7,000 civilians a year since 1989.

After the Pentagon agreed upon a separation bonus alternative for the uniformed side, the civilian personnel policy office, with the blessing of DoD workers' unions, began to argue for the same arrangement. There was some resistance to the idea in the executive branch, says Ronald P. Sanders, acting assistant secretary of defense for civilian personnel policy and equal opportunity. "The fear is that once we start paying people to leave, we will have to pay everybody to leave," he explains.

Nevertheless, Sanders argues that "we are only doing for our civilians what any good employer should do." He also points out that the program makes economic sense. "The amount we chose for the buyout, $ 25,000, is very deliberate: It is the same amount we would pay to fire somebody." (When DoD fires a civilian, it owes severance pay, unemployment compensation and three-quarters of the employee's health-insurance premiums for 18 months.) "In effect, instead of paying one person to be fired, we will pay another person to leave voluntarily.

Right now Sanders won't estimate what the total cost of separation incentives will be this year. He does say, however, that about 40,000 people have been offered bonuses, and about 75 percent are expected to accept. So far, the average separation incentive has been $ 24,000. The uniformed side of DoD is estimating it will spend $ 2 billion this year and the same amount next year to reduce the payroll by about the same number of employees.

Elders First

Congress did add one major condition for the civilian buyouts; Incentives must "result in aggregate net salary savings." Accordingly, DoD has purposely designed the separation incentives to be more attractive to older workers, since taking employees with seniority and high salaries off the payrolls will save the most money.

So, when DoD makes bonuses available everyone in a certain category at a base, workers at different stages of their careers benefit very differently. Workers who are eligible to retire and who voluntarily leave their jobs receive their full annuity plus all the other retirement benefits, like health insurance. The separation bonus is simply icing on the cake.

Employees who qualify for early retirement have their annuity reduced by 2 percent for each year they retire before the age of 55. But DoD calculates that the bonus, especially if it is invested and earning interest, offsets the cut in the annuity. Early retirees also receive their full benefits package.

Workers not near retirement age may choose to take the cash and run. But, just as if they were quitting under normal circumstances, they lose all benefits. They may choose to keep their health insurance for 18 months if they pay the entire premium themselves, however.

The actual size of the separation bonus is a function of the employee's salary and tenure in government.

In addition to the obvious savings that come from reducing the number of highly paid workers on the payrolls, there are hidden savings as well. Under a RIF, senior workers have the right to stay in the workforce by taking the jobs of people lower in the hierarchy, who can in turn bump people below them. By the time someone actually leaves the work force, five or six people may have been bumped down the line, and in the meantime, each person in the chain retains his or her higher salary for at least 18 months, thus using up an extra few thousand each.

DoD is calculating that 80 percent of the people taking the incentives are eligible for retirement or early retirement, are older than 50 and have at least 20 years of experience. "We are losing a lot of senior workers, which represents a lot of institutional memory," admits Sanders, "but the alternative is just as bad, which is that we end up firing all of our new blood, and that has particular implications for the diversity of our workforce, since most of our minorities and women are less senior than our white males."

The Chosen

Decisions on who gets the separation-bonus option are made in a very decentralized manner. Each installation looks at its budget and decides what kind of civilians are needed there. If a naval base has, say, 100 shipbuilders and decides that it needs only 80, it is authorized to offer incentives to anyone in that job field. Of course, not all jobs within categories are fungible, so the installation risks losing some people it needs. As a drawdown tool, the incentives are "not as blunt as attrition," as Sanders says, but they are not completely precise either. Sanders thinks that's as it should be. "We are leery of making this so sharp a scalpel that managers would literally go to those 100 shipbuilders" and pick and choose which individuals would be offered a separation bonus.

DoD repeatedly emphasizes that the buyouts are only for workers in surplus categories. Personnel executives don't want people to defer retirements because they think a buyout is coming. Sanders explains that this has already occurred on several bases, and then workers not offered bonuses have called their representatives in Congress to complain.

The separation bonuses are not retroactive. This means that if a worker has received a RIF notice, he or she is not eligible for a separation bonus. The policy has created some bad feelings for people who were let go before the incentives took effect. "Literally, we closed three bases late last year and didn't get a chance to use the separation incentives," Sanders says. "Unfortunately, there is always somebody who has got to be on the other side of the line."

To mitigate some of the pain, DoD is using the civilian bonuses as a tool for opening jobs at nearby bases. Take the case of Chase Field, a naval air station in Beeville, Texas, which was slated for closure on Jan. 19, 1993. Workers received RIF notices well before Congress passed the bonus legislation. Two weeks before the base was supposed to close its doors, 80 of the 350 employees still had not found jobs or agreed to retire. DoD then offered to create openings for workers who agreed to move. Thirty employees accepted the challenge. DoD went to a Defense Logistics Agency facility and another Naval Air station, both located 50 miles away in Corpus Christi, and offered bonus incentives to employees in jobs corresponding to the ones the soon-to-be-unemployed 30 had recently held. DoD was able to make new openings for 28 of those who requested them.

DoD also has a variety of other tricks up its sleeve for helping displaced workers:

• The department is allowing employees who work at installations that are closing and who have not yet received RIF notices to swap comparable jobs with employees who are eligible to retire but work at installations where separation bonuses aren't being offered.
• To encourage other federal agencies to hire DoD employees, the defense agency is offering to pay $20,000 for moving expenses. (Workers who take federal jobs can't receive separation bonuses.)
• Private contractors hired to maintain DoD bases that are closing have been told they must give top priority to displaced base workers when they have appropriate job openings.