This report assesses the cost-effectiveness of using the Voluntary Separation Incentive Payment (VSIP) program — a downsizing tool available to U.S. Department of Defense (DoD) personnel managers — to reduce the size of the DoD civilian workforce, in conjunction with or instead of imposing involuntary separations. It also considers how the amount and structure of VSIP could be improved.

Workforce Downsizing and Restructuring in the Department of Defense

The Voluntary Separation Incentive Payment Program Versus Involuntary Separation

Beth J. Asch, James Hosek, Michael G. Mattock, David Knapp, Jennifer Kavanagh

ResearchPublished Oct 13, 2016

The U.S. Department of Defense (DoD) plans to reduce the size of its civilian workforce through 2021. An important downsizing tool available to personnel managers is the Voluntary Separation Incentive Payment (VSIP), but its cap, $25,000, has not been adjusted since 1993.

The authors of this report used RAND's dynamic retention model (DRM) for DoD civilians to compare the cost-effectiveness of alternative approaches to achieving a given downsizing. These include packages of VSIP, voluntary early retirement authority (VERA), and involuntary separation if also needed, versus using involuntary separation alone.

Increasing the VSIP cap to $41,000 (the real value of VSIP in 2015 dollars) increases voluntary separations by about 45 percent and, compared with the $25,000 cap, would result in greater net savings to DoD and greater net savings in government outlays over five years. Although the apparent cost savings, as reflected in the budget, are greater when involuntary separations are used, there are off-budget costs, such as workplace turmoil, disruption, and lower morale, associated with involuntary separation. The authors used the DRM to estimate the cost borne by employees who are involuntarily separated in terms of the value of the loss of employment, net of the severance pay they receive. Such costs could potentially hurt retention and workforce productivity among those who remain. Using this broader concept of cost that includes both the cost to the government and the cost borne by employees, VSIP generates more net savings and is more cost-effective at the margin than involuntary separation.

Key Takeaways

VSIP Is an Effective Method of Generating Additional Voluntary Separations

  • Increasing the Voluntary Separation Incentive Payment (VSIP) cap from the current $25,000 to $41,000 (the real value of VSIP in 2015 dollars) generates about 45 percent more separations, and increasing the real value even more — say, to $55,000 — generates even more separations.
  • VSIP produces budgetary net savings to DoD both after the first year and cumulatively after five years. VSIP also produces net cumulative savings to the Treasury over five years. Furthermore, the net savings to DoD and the Treasury are larger over a five-year horizon when the VSIP cap is larger.
  • Changing the VSIP formula by allowing VSIP to be the maximum, rather than the minimum, of the cap and severance pay would generate a larger number of VSIP takers, at significant net savings to DoD and to the Treasury.

Involuntary Savings Generate Budgetary and Outlays Savings but Impose Other Costs

  • Using involuntary separations alone generates more budgetary and outlays savings over five years than using VSIP, as does a mixed strategy involving a VSIP offer and the possibility of involuntary separation.
  • However, these budgetary and outlay figures do not incorporate the cost borne by individuals who are involuntarily separated, a cost that could hurt the retention and productivity of those who remain. When this cost — the value of these individuals' lost careers, net of severance pay — is incorporated, involuntary separation is less cost-effective at the margin than VSIP.
  • The authors likely underestimate the cost-effectiveness of VSIP versus involuntary separations, because their estimates do not include other, difficult-to-quantify costs to DoD associated with involuntary separations, such as lower morale, turbulence, disruption, and possible resulting skill and experience imbalances.

Topics

Document Details

Citation

Chicago Manual of Style

Asch, Beth J., James Hosek, Michael G. Mattock, David Knapp, and Jennifer Kavanagh, Workforce Downsizing and Restructuring in the Department of Defense: The Voluntary Separation Incentive Payment Program Versus Involuntary Separation. Santa Monica, CA: RAND Corporation, 2016. https://www.rand.org/pubs/research_reports/RR1540.html.
BibTeX RIS

Research conducted by

This research was prepared for the Office of the Secretary of Defense, Personnel and Readiness/DCPAS/Transition Program Branch and conducted within the Forces and Resources Policy Center of the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

This publication is part of the RAND research report series. Research reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND research reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.