Last One Out, Turn Off the Lights

Retirements were up 24 percent last year. The shutdown is likely to drive many more civil servants out the door in 2019.

For years, academics and civil service watchers have been warning about the coming retirement wave of federal workers. It may very well be upon us: In fiscal 2018, there was a 24 percent surge in employees filing for retirement over the previous year. But to borrow an old phrase, “you ain’t seen nothing yet.” More than a month into the partial government shutdown affecting 800,000 federal workers, the staffing ramifications for the civil service could be felt for years to come.     

With this latest shutdown, employees are clearly collateral casualties in a political war. Their experience will change the public’s view of government careers through the 2020 election and beyond. Once agencies reopen for business, many employees will never have the same commitment to their jobs.

Last July, 14 percent of the workforce—that’s more than 250,000 employees—was eligible to retire. If government had trouble recruiting and retaining short-supply talent in the past, now it will be close to impossible. (That also will affect federal contractors.)

At the end of December, President Trump froze federal pay. Further, he has twice proposed cutting retirement benefits for federal employees. Those actions surely are factors for many considering other career options.

Private sector poaching of federal employees has already begun. A recent post from one of the nation’s leading employment experts had the tongue-in-cheek headline, “If You Really Want to Help Government Workers … Recruit Them Away.”  The newsletter explains “the top 10 reasons why this government shutdown is the best opportunity for corporate recruiting” and concludes with advice on “how to effectively raid federal agencies.” One suggestion is to recruit entire teams.

Washington’s Changing Labor Market

In November, Amazon’s decision to base one of its two new headquarters in Crystal City, Virginia, changed job prospects in the nation’s capital dramatically. The company promised to add “25,000 new jobs with an average salary of $150,000.” It’s also expected that companies linked to Amazon will add jobs in the area.

Additionally, the commonwealth announced it will invest $1 billion in a Virginia Tech “innovation campus” for graduate students studying computer science, software engineering and data science. It could become Silicon Valley East.

That will open very attractive second career opportunities for disenchanted federal employees as well as those who simply want a higher salary. (If I was younger, I would switch to search/placement consulting.  With fees ranging from to 20 percent to 32 percent of the first-year base salary, it will be a lucrative business.)

The number of retirement eligible employees in the Washington area has to be significantly higher than 14 percent. Fedscope data shows that more than 15,000 employees working in Washington for Cabinet-level agencies are age 60 or older, and another 15,000 are between 55 and 59. Added to that are another 11,000 in the age 55 plus cohort working in the area for independent agencies.

In Virginia (although not necessarily within the Beltway) there are over 40,000 federal employees age 55 or older. Defense and the three military branches account for 16,600 employees at or approaching the date they can retire. Significantly, over 50 federal agencies have operations in Virginia.

The totals mask the issue that will likely be the most pressing problem. In the District, the retirement-eligible cadre (over age 55) includes 8,845 “managers and supervisors”; in Virginia there are 6,455 in the group.  They play key operational roles. Across the country there are close to 75,000 managers and supervisors in the age 55 plus group.

Regardless of why they leave, if the numbers are as large as expected, the loss of technical and institutional knowledge will destabilize day-to-day work processes. When large groups of managers leave, it will trigger a chain of promotions, disrupt working relationships, and weaken decision making until individuals master their new roles. Agencies will take months to rebuild stable operations.

Employees of the U.S. Postal Service are not affected by the shutdown but they are of course covered by federal retirement plans. Roughly 200,000 of the 650,000 workforce are age 55 or older. USPS employment data are not in Fedscope but the headquarters and two district offices are inside the beltway.  The Postal Service has the oldest workforce of any sector. In FY 2018 the failure of almost 40 percent of USPS’s managers, supervisors and professionals to earn an increase under the pay for performance policy impacted morale and makes the organization vulnerable to poaching.

The Talent Shortage Is Real

This is a time when talent shortages have triggered larger pay increases in the private sector as companies compete for essential skills. The compensation of the highest civil servants in government (and the USPS) have been effectively frozen since 2000 (the salaries of cabinet secretaries have increased 5 percent in two decades). That effectively caps the increases for Executive Schedule and Senior Executive Service positions. And that eventually affects career prospects for lower levels of managers.

For years federal salary increases, counting all the dollars flowing into General Schedule salaries, kept pace with increases in the private sector. That explains why the pay gap has been more or less constant.  But the 2008 recession prompted the pay freezes in 2011-2013, followed by 1percent increases in 2014-2015. The gap is almost certain to grow for the foreseeable future.

The General Schedule pay system was not planned and has never been administered to be market-sensitive. It’s far too rigid under the best of circumstances to enable agencies to compete for talent.  It has been more than 20 years since job-specific market data was last compiled. Compiling that data will help agencies know where they are most vulnerable to losing talent. To be competitive, the GS system needs to be replaced with a more responsive program.

When HR Offices Reopen

Human resource offices need to be ready when the shutdown ends.  

The employment expert referred to earlier made the point that “there is no public evidence that the Office of Personnel Management or individual federal agencies are taking any proactive actions in order to retain their best talent. Obviously, without being encouraged to stay, it will be much easier . . . to convince them to consider leaving.” Convincing the most talented people to stay should be a priority.

An immediate focus should be predicting near term retirements. The data from the retirements in early 2018 are well suited to analytics. Ideally agencies know the most talented and best performers and can take steps to convince them to stay. (The poachers are likely to know the stand-out employees as well.)

Reconfirming (or developing) succession plans will be useful to prepare for unexpected retirements. Retirements at senior levels trigger moves at lower levels. HR specialists should also arrange for focus groups across the agency to give employees a chance to voice their frustration and anger. They need a safe forum to vent. The groups would also give employees an opportunity to discuss their thoughts for steps to restore their operation to normal functioning. Involving them will help to regain their commitment.

It will also be useful to contact counselors in college placement offices and search consultants to gain an understanding of how the shutdown has harmed government’s brand. Government cannot afford to lose the generation now entering the labor force.