RIF: Not an easy solution for downsizing a workforce

This column was originally published on Jeff Neal’s blog, ChiefHRO.com, and was republished here with permission from the author.

Most people do not like to think or talk about a reduction in force (RIF) and they certainly do not want to do a RIF. But, think and talk about it we must. And in some agencies, leaders may have to more than that.

Most people would rather talk about the “A word” — attrition. For many years that has been the preferred way to shrink the workforce. Attrition is less harsh, it does not force people out of their jobs, and presents fewer opportunities for favoritism or other bad things. So why would we ever consider RIF when we have the allegedly painless magic of attrition? There are at least three reasons.

1. Attrition is random. It does not always happen where you need it. If we have an organization where we want to reduce the number of people in position A, but keep all that we have in position B, we have to pray that the people who leave are in position A. If not, we may find ourselves being unable to hire for the jobs we need and still having too many people in the positions we do not need. Multiply that by a few dozen types of jobs and it is easy to see how an agency could get itself into a bind.

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2. Prolonged pain. Attrition takes a downsizing process and drags it out for months or even years. The organization is constantly under stress, leaders may not see the need for rapid rethinking of processes and structures, and the workforce is asked to do more with less until they break. It is not good the agency, its mission or its workforce.

3. Timing. This one is most important for our situation today. Attrition depends on people leaving. If they are leaving in large numbers (and from the right jobs), attrition can work well. But most agencies do not have high turnover rates. If an agency has a turnover rate of 5 percent and is told to take a 10 percent cut (the size of the reductions we are hearing about in the President’s budget plan) on Oct. 1, they have a problem. Turnover takes time, and in that agency with 5 percent turnover, it would take two years of hiring no one to meet the goal. That is two years too late. Agencies can increase turnover by offering buyouts and early retirement, but that takes time, and they either need more money to pay for the buyouts or they have to do them early in the fiscal year. Attrition is great for small reductions that do not have a budget deadline. For big reductions, the timing simply does not work.

So, if attrition can be bad, why not just go ahead and do a RIF right away? What could go wrong? In a word, everything. Here are just a few examples:

• RIFs are disruptive. They follow a byzantine set of rules and scare the living daylights out of people. They sometimes scare away the best and most marketable members of the workforce, leaving the agency with the folks who cannot get a job elsewhere. They take time, and during that time the workforce may be consumed with talk of the RIF, rumors, suspicion and fear. You can imagine what that does to morale and productivity.

• Few federal agencies are prepared to run a RIF. My experience running too many large and small RIFs taught me many things, chief among them being that informed, thoughtful and thorough preparation is absolutely essential. There are so many ways that RIFs can blow up on agencies that failure to prepare almost guarantees a RIF will be a mess. And that’s just running the RIF itself. Absent the right preparation, the aftermath of the RIF will also be a mess, with RIF actions overturned on appeal and projected savings not materializing for years.

• A clean RIF starts with clean records — something few agencies have. Most agencies have not looked at things like RIF competitive levels for many years. They have moved from very specific job descriptions to generic versions without considering what that will do to them in a RIF (hint: it isn’t good). They have not verified service computation dates. And they do not have processes in place to do those things.

• Who knows how to run a RIF? RIF is a logical process, but most federal HR folks have never had to run a RIF. From one perspective that is great, they have avoided laying off their employees. From another perspective it is a big problem. If the first RIF you run affects a large portion of the workforce, and budget pressures mean it has to be right the first time, you are in trouble before you start.

• The workforce does not understand the RIF rules. Why should they? The federal government has separated only a few hundred employees via RIF in recent years. Federal employees had no reason to try to learn how RIFs work. Now that RIFs are far more likely, that lack of knowledge is going to generate fear and stress.

• The finances of RIF are another problem that most people have not thought about. RIF is expensive and it may not generate immediate savings. That means an agency may have to overshoot its reduction target to keep from busting the budget. Buyouts are a great tool that have proved their effectiveness. In fact, Congress should give every federal agency the increased ($40K) buyout cap that Defense got in the 2017 National Defense Authorization Act. But, buyouts cost up to $25K per employee. Severance pay is another RIF cost. An employee who is separated by RIF and who is not eligible to retire immediately gets severance pay. Severance can go as high as 52 weeks of pay. Another cost is lump sum annual leave. An employee who is separated or leaves voluntarily gets paid for accrued annual leave. That can easily add 10 percent of annual salary. So, if you separate a GS-12 who makes $90K per year and give that person six months of severance pay and their annual leave, that would cost $54K. If you do not make the RIF effective until mid-year, there is no dollar saving at all that year.

Lump sum leave, buyouts and severance pay do not take into account the biggest cost of RIF — grade and pay retention. Let’s say you abolish a GS-12 position where the employee makes that same $90K per year. The employee has enough seniority to bump or retreat into a GS-9 job. The GS-9 has enough seniority to bump or retreat to a GS-5. Both employees have been in the job long enough to qualify for grade retention. That means for the next two years, the former GS-12 and GS-9 will not lose a penny. The person who goes out the door is a GS-5 making $40K per year. The job you abolished with the intent of saving $90K per year produces only $40K of savings. Once you add in the cost of severance pay and leave payout for the GS-5, the first year savings may drop to only $20K. Once the grade retention expires, the employees will receive pay retention. In most cases, they will never see an actual reduction in pay. They will simply get half of annual pay increases until their pay catches up. That will take years.

It is easy to see why a clean RIF is hard to come by. It can be done well, and it can be done in a way that does save money, but it takes time, careful analysis and planning, and a long-range view of consequences. I ran a RIF that affected more than 1,500 people and we had no reversals on appeals, arbitrations or complaints. That took a lot of work and it was painful. Jump into it without the right preparation, and the consequences will be ugly.

The truth is that there is no painless way to dramatically shrink an organization. Agencies faced with that daunting task will need to make decisions that best serve the mission, while doing everything they reasonably can do to prepare and to look out for the interests of the workforce. It is not going to be easy, painless or without risk, but it can be done.

Jeff Neal is a senior vice president for ICF International and founder of the blog, ChiefHRO.com. Before coming to ICF, Neal was the chief human capital officer at the Department of Homeland Security and the chief human resources officer at the Defense Logistics Agency.

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