Tuesday, December 22, 2009

The Cost of Reducing the Workforce

The postal industry is in the midst of efforts worldwide to reduce its workforce.   The combination of automation, more efficient operating networks and declining demand all require reductions in production employees far greater than attrition allows.

The Detroit News reported that Ford has just announced new incentives for employees to retire or seek new employment.  The incentives that Ford announced yesterday came about 6 months after they were previously offered.  Ford's incentives are more generous than anything the Postal Service has offered.  Ford is offering a retirement package of $20,000 for unskilled workers and $40,000 for skilled workers plus an additional $20,000 or $25,000 toward the purchase of a new car.   Employees not eligible for the retirement incentives were offered a $50,000 buyout offer plus additional $20,000 or $25,000 toward the purchase of a new car.  While these incentives are large compared to what the Postal Service has offered, in July, only 1,000 Ford employees took similar incentives to leave the Ford payroll.

In the past year, the USPS has implemented two early retirement incentive programs that in total cut the workforce by less than 25,000 employees.   Given potential volume losses of 4-6% of years, these incentive programs could become a bi-annual process.    The Postal Service may find greater success in convincing employees to retire with its incentive programs in the future as the economy improves.    It will still face challenges as incentives will not be equally attractive in all regions with the differences reflecting the strength of the local economy and the strength of ties employees have to their local community. 

The size of the incentives that Ford offers suggests that getting employees to leave in communities currently experiencing high levels of unemployment may be even larger than what has been previously offered to reduce the workforce at a rate equal to reductions in the demand for labor.  The financial position of the Postal Service, and in particular its lack of cash reserves, make larger incentives unlikely even if they would save money in the long run.

In developing long range business plans, the Postal Service and entities evaluating the future of the Postal Service will need to include the costs of retirement incentives and severance payments in estimating potential profits and losses going forward.  These long-range business plans should include provisions for extraordinary costs so that stakeholders reviewing these plans have an honest assessment of the transition costs of matching the postal workforce to mail demand.


common-sense said...

Mr. Robinson,

Your analysis is lacking some pulp. You make no mention of what percentage of each workforce -- Ford and the Postal Service respectively -- opted for the incentive packages. 1,000 vs. 25,000 with no frame of reference, is meaningless. You made no mention of what the comparative burden cost per senior employee is to each respective employer and in the case of the Postal Service, what the burden cost is for a new, less compensated employee. There's a significant savings there that amortizes itself in short order. You made no mention of their comparative salary/benefit packages.

One might deduce from your piece that since the Ford separation package was more lucrative, yet so few opted for it, that the Postal Service has no chance of reducing its workforce with lesser incentives, or a limited amount of offers. Such is not the case. The problem, is the type of incentive offered. Quite simply, more employees would leave the Postal Service right now if service time towards retirement were offered in lieu of cash. Having bi-annual incentive buyouts will only keep senior employees on the rolls longer as they add to their service time, before cashing in on a "guaranteed" separation incentive.

The Postal Service needs a separation package that includes cash to entice those already at, or past eligibility for retirement, and added service time for those employees almost eligible. As a Postal employee who fits the latter -- almost eligible -- added service time will be enough to get me (and many others) out.

Perhaps the Postal Service could offer a one-time option for early retirements:

$25,000 cash, OR added service time

This covers most bases and the unions will surely back this type of initiative and encourage their membership to "strongly consider" acting upon it. Again, the savings start immediately and those opting for service time, will leave cash in Postal Service coffers moving forward.

Anonymous said...

Ford and the Postal Service are different kinds of entities. Ford is for-profit and answers to stockholders. USPS is not and answers to Congress. Ford has money that can be used to entice employees to get off the payroll. USPS does not; Congress would have to provide such funds. I have a better idea.
USPS should offer some degree of financial incentive - and assistance - for ANY employee to leave the USPS for another federal agency - not just to "retire" to a sluggish economy. The federal government is huge and pervasive, with any number of local offices for various agencies in every American city.
A lot of changes were made in my facility this year. (Everyone was told many of the supervisors were expected to leave USPS to go work for other government agencies; didn't happen, but the idea is still a good one.) There are a lot of "unhappy campers" who might be persuaded to leave the USPS for another fed agency with offices in our city. I plan to investigate alternatives in my city because I now feel like a fish-out-of-water in my facility, having to now work with machinery I, and others, detest. Times are changing, but fed payrolls - other than USPS - are expanding.

Anonymous said...

Some good ideas but not for everyone...The Postal Service needs to find a way to entice the older workers to retire. The monetary incentive of 25,000 is just a deal sweetener but will not work. 25,000 in todays world is meaningless. I firmly believe that adding 5 years to either age or years of service would create a huge stir amongst the "older-CSRS" employees. Losing 2 percent per year is huge. Especially for the rest of your life so the monetary incentive as I said before is not going to work. Senior employees leave with an extra 5 years and replace them with lower cost newer employees. This is a no brainer. Whatever costs are associated with this will be made up just in lowere salaries. Just to wrap this up...if an employee has 2 years to go and he/she is 53 years of age, he/she stands to lose 4+ percent each year for the rest of their life. Huge loss. Give them 5 years and they stand to gain 4+ percent. They would be foolish to stay.

Anonymous said...

Under current law, federal employees can not be offered additional years.