Thursday, January 20, 2011

Attrition, VERA, Retirement Incentives and RIF's

The Postal News blog corrected an impression of mine that the Postal Service may be changing its approach to reducing the workforce.
Donahoe told the Washington Post’s Ed O’Keefe that the 7,500 positions being eliminated would be cut by attrition. Eliminating an entire area office requires the use of RIF rules- it’s nothing new. Those rules were followed in all of the previous area and district consolidations, and don’t automatically mean that any employees will actually be involuntarily separated from the USPS. 

My confusion reflects the difficulty of understanding the options available to the Postal Service to quickly reduce the workforce.  Pat Donahoe's statement clearly is consistent is with the strategy that the Postal Service had used under PMG Jack Potter to rightsize its workforce.   In addition the correction reminded me that all options for reducing the workforce have costs and that the options that can reduce the workforce the fastest have the highest costs.   

The lowest costs relate to reducing the workforce via attrition as this method may result in a mismatch between the individuals that leave their jobs at the Postal Service and the work that continues to be required.   The Postal Service must then cover training, transfer and other transition costs to fill those positions that continue to be required from those employees that continue to be on the payroll.

VERA adds costs associated with running an early retirement program and may result in higher levels of transfer and training costs to the extent that a VERA increases attrition.    

Finally offering retirement incentives and and RIF's further increase the cost of reducing the workforce because of the expense of the incentives or the severance payments involved.

To the extent that the Postal Service continues to use attrition to reduce the workforce, Postal management will likely to be challenged by Congress, the GAO, the Postal Regulatory Commission and mailers who have focused on Postal Service cost management in the past to explain why they are not using more rapid means to reduce the workforce than attrition.   When that occurs, the Postal Service needs to be able to explain the difference in cost of reducing its workforce using each of its four options as well as why it was to cost effective to use a more rapid method to match the postal workforce to the Postal Service's actual needs.   


M. Jamison said...

The VERA costs may be minimal at this point. Several VERAs have been run over the last two to three years so the lists are developed and the procedures are in place.
The one salient factor that no one mentions is the ongoing cash flow problem. During PMG Potter's rein several VERAs were offered and received a low response rate. That probably could be attributed to the rumor mill and the establishment of expectations that incentive payments would be offered. The cycle became self-feeding until incentives were negotiated with the APWU.
Unless Headquarters comes up with a stick to drive participation in a VERA I suspect many management employees may sit back and wait for the inevitable incentives.
The problem with that is that there may not be enough cash to pay incentives. At the current maximum incentive allowable by law of $25000, $188,000,000 would be needed if 7500 people took the incentives. That's not an insignificant amount.
It's hard to know what Mr. Donahoe's strategy will be since it's still unclear how they're counting. There are at least 3000 unfilled postmaster vacancies which are unfilled. Conceivably that is 3000 slots for District jobs that are eliminated. But 2000 postmaster losses were mentioned. Since there are several closure cases in front of the PRC and law and scrutiny would not permit wholesale closings at this point, one has to wonder if the 2000 are postmasters who are currently eligible for retirement. What stick and carrot approach may be used to induce them to retire?

common-sense said...

To M. Jamison,

I have some thoughts regarding your analysis.

The ongoing cash flow problem will persist the longer the Postal Service takes to reduce rolls. Using an incentive has been the only way the Postal Service has been able to entice workers to leave. And while there's a short-term hit on cash flow with an incentive, the longer term strategy more than pays for itself. For instance, you mentioned a $188,000,000 hit from a $25,000 VSIP offered to 7500 employees. What wasn't mentioned however, was that at an average salary of $70,000/annum, those 7500 employees equate to $525,000,000/annum in salary costs alone, total burden costs notwithstanding. The real question is; why must they be replaced if the objective is to downsize?

I also do not believe that the reason for the low response rate for VER's offered under PMG Potter's "reign" were related to rumor mill, or an establishment of expectations. It's much simpler than that...employees are:

a.) in debt, or
b.) do not want to be penalized for leaving early, or
c.) they've immersed themselves in a career that in part, defines who they are, or
d.) they've seen how the private sector incentivizes employees to leave early, so they won't leave unless it's on their terms, not their employers'.

The list could continue, but the main reason employees won't leave without an incentive, is not because they're expecting one, rather, they're demanding one.

Going forward, cash flow problems will only get worse if the powers that be decide to sit on their hands and hope for the best. PMG Donahoe seems to understand the gravity of the situation he and the organization are in, and he appears to be proactive.

Just because something has never been done historically, doesn't mean it can't happen today with the stroke of a pen. Congress could easily change the health benefit pre-payment obligation to a pay-as-you-go method. They could temporarily raise the statutory borrowing limit in conjunction with downsizing. There are many options to work through this cash flow crisis, but only one salient option to induce employees to retire...

Postaled said...

My understanding is that in regards to management no carrot and stick approach is necessary. They are not protected under negotioted contracts as the craft is hence the Vera cash incentives. As I undrstand it if management or congress played hardball with EAS(managers) they could simply impose RIF on them and force them into vacant field positions or even back into craft positions with little or no contractual protection. Craft employees have negotiated no layoff language contractually as I understand it management has little or no protection against this so if the USPS so desired they could simply layoff managers if necessary. I could be wrong but I think this is accurate to a great extent.

Anonymous said...

There wouldn't be a cost if you allow the withdraw of all CSRS deduction tax free and added five years to the time in service.It only takes Congress and the stroke of the pin.