An analysis of the separation bonus (VSI/SSB) program using the annualized cost of leaving model

Abstract

This thesis investigates the effect of the Voluntary Separation Incentive/ Special Separation Bonus (VSI/SSB) on the voluntary separation behavior of Navy officers and Navy enlisted personnel using the Annualized Cost of Leaving (ACOL) model. The thesis also estimates the effect of the threat of a reduction-in-force (RIF) on VSI/SSB program acceptance behavior. Data provided by the Defense Data Manpower Center (DMDC) on VSI/SSB eligible Navy officers and Navy and Air Force enlisted personnel in FY93 and FY92 are used for the empirical analyses. Multivariate probit models are estimated to predict the voluntary separation rate in the absence of the financial incentive. These estimates are used to calculate the costs and benefits of the VSI/SSB program for both Navy officers and Navy enlisted personnel. This thesis finds that the VSI/SSB program increased the voluntary separation rate by 44.93 percent for Navy officers, but only by 4.29 percent for Navy enlisted personnel. The threat of RIF significantly increases voluntary separation rates.