Early Severance Incentive Analysis

Early Severance Incentive
Narrative Summary

• The District has performed a comprehensive analysis of the financial implications of an Early Severance Incentive on numerous occasions.

• The purpose of each analysis was to determine whether an Early Severance Incentive would result in budgetary savings to the District.

• The District's comprehensive analysis of an Early Severance Incentive utilized a long term approach to determine net savings to the District. The only true way to analyze such a program is over an extended time frame. The District's analysis used a ten-year time frame.

• An Early Severance Incentive would pay employees a predetermined amount as an incentive to retire earlier than they would have done otherwise. The savings would result from a higher paid retiree being replaced by a lower paid employee. Replacement employees are placed on the same salary schedule as retiring employees.

• The District's analysis of an Early Severance Incentive compared the wage and benefit savings from normal attrition to the wage and benefit savings from an Early Severance Incentive.

• In all cases, the results of the comprehensive financial analysis indicate that an Early Severance Incentive does not yield budgetary savings to the District greater than what would occur through normal attrition.

• A summary of the results is as follows:
  • Normal attrition of staff yields more savings than an Early Severance Incentive.
  • An Early Severance Incentive pays employees to do something that they will do anyway . . .that is, retire.
  • An Early Severance Incentive increases unemployment costs when staff reductions are necessary in future years.
  • Increment costs (automatic wage increases) are higher in years following an Early Severance Incentive.
  • While an Early Severance Incentive may yield greater short term savings, over the long term, a normal attrition scenario yields greater budgetary savings.
  • An Early Severance Incentive is not an effective long term budget reduction strategy.

• Early Severance Incentives may save money when retired employees are not replaced or there are significant reductions in wages and fringe benefits for replacement employees.

• The most recent financial analysis of an Early Severance Incentive can be accessed on the District's website (Below).

12/04/09