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.   

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.