Workforce Downsizing and Restructuring in the Department of Defense: The Voluntary Separation Incentive Payment Program Versus Involuntary Separation

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.