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Reinventing Human Resource Management

HRM14: Provide Incentives to Encourage Voluntary Separations

Background

Throughout the federal government, departments and agencies are being asked to work more efficiently, that is, with fewer resources. To achieve this goal, many organizations are facing potentially massive restructuring and downsizing. Incentives are needed to encourage voluntary separations, thereby reducing or eliminating the need for relocating, reassigning, or separating employees under reduction in force procedures.

Need for Change

According to the Office of Personnel Management (OPM), voluntary early retirements among eligible employees have dropped from approximately 17 percent in the mid-1980s to 4 percent in 1992. After remaining relatively constant at approximately 36 percent during the same time period, regular optional retirements dropped to 23 percent in 1992.(1) Overall attrition from federal service is at its lowest level since 1973, when OPM began tracking these data.

The federal government's recent experience with separation incentives suggests that a large percentage of employees will choose regular or early retirement if incentives are included. The Office of Thrift Supervision (OTS) and the U.S. Postal Service (USPS), in 1991 and 1992, respectively, offered lump sum payments equivalent to six months' salary to persons eligible for either early or regular retirement. In OTS, 38 percent of early retirement and 53 percent of regular retirement eligibles accepted the offer. In USPS, 27 percent of early retirement and 43 percent of regular retirement eligibles accepted. In 1993, Department of Defense (DOD) employees were offered the lesser of $25,000 or the amount the employee would otherwise be entitled to receive as severance pay. About 20 percent of early retirement eligibles and 40 percent of regular retirement eligibles have retired from DOD recently.(2)

Actions

1. Provide departments and agencies with the authority to offer separation pay. (3)

By October 1993, OPM should forward draft legislation to Congress to permit any department or agency to offer cash payments to encourage eligible employees to voluntarily separate from the federal service, whether by retirement or resignation, to avoid or minimize the need for involuntary separations due to reduction in force, reorganization, transfer of function, or similar action. The legislation should include a comprehensive, governmentwide strategy for determining the dates during which cash payments would be offered to maximize acceptance rates. Eligible employees would be those serving under permanent appointment without time limitation for a continuous period of at least 12 months, excluding reemployed annuitants and employees who would otherwise be eligible for disability retirement. The law will include a provision requiring repayment of separation pay should the individual become reemployed by the federal government within two years of the date of separation. Departments and agencies will fund the costs of this measure from within their available appropriations.

2. Decentralize the authority to approve early retirement. (3)

By October 1993, OPM should forward draft legislation to Congress to allow OPM to assess an actuarial charge against agencies to cover the estimated present value of the added cost to the retirement fund of early retirement, currently estimated at 9 percent of final pay. Once the new legislation has been enacted, OPM should delegate broad authority under the relevant section of the current law(3) to permit departments and agencies to make their own determinations using the criteria outlined in the law to allow their employees to retire early.(4)

3. Authorize departments and agencies to fund job search activities and retraining of employees scheduled to be displaced. (3)

By spring 1994, OPM should convene an interagency task force to develop proposals, including legislation if necessary, by September 1994 to allow departments and agencies to fund job search activities and retraining to facilitate placement of employees who are otherwise scheduled for downgrade or separation.

4. Expand outplacement services. (1)

By March 1994, OPM should develop and implement a comprehensive, readily available, state-of-the-art information system for the purpose of informing employees about the availability of federal and other public sector job opportunities.

5. Limit annual leave accumulation by senior executives to 240 hours. (3)

By October 1993, OPM should forward draft legislation to Congress to delete the section of the law that exempts the annual leave accumulated by members of the Senior Executive Service, the Senior Foreign Service, the Defense Intelligence Senior Executive Service, the Senior Cryptologic Executive Service, and the Federal Bureau of Investigation and Drug Enforcement Administration Senior Executive Service from the limitation otherwise imposed by that section on annual leave accumulation.(5) Annual leave accumulation for individual senior executives will be limited to 240 hours. This limitation would bring senior executives in line with other government employees and serve as an incentive for some senior executives to take advantage of separation incentives.

Cross References to Other NPR Accompanying Reports

Improving Financial Management, FM13: Charge Agencies for the Full Cost of Employee Benefits.

Transforming Organizational Structures, ORG01: Reduce the Costs and Numbers of Positions Associated with Management Control Structures by Half; and ORG02: Use Multi-year Performance Agreements between the President and Agency Heads to Guide Downsizing Strategies.

Endnotes

1. Office of Personnel Management, "Retirement Trends With and Without Incentives: Summary Through July 30, 1993," p. 1. (Unpublished.)

2. Ibid., pp. 1-3.

3. Title 5, United States Code, sec. 8336(d).

4. Title 5, United States Code, sec. 8336(d)(2).

5. Title 5, United States Code, sec. 6304(f).

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