CONSEQUENCES OF SEPARATION INCENTIVES: THE EFFECTS OF VSP AND TERA ON THE MARINE CORPS AVIATION COMMUNITY

Abstract

In 2013 the Marine Corps began to reduce end-strength from 202,000 to 182,000. To facilitate the force reduction of mid-careerists, the Marine Corps offered Voluntary Separation Pay (VSP) and Temporary Early Retirement Authority (TERA). This thesis examines the efficiency of these two programs across Naval Aviator and Naval Flight Officer (NFO) Military Occupational Specialties (MOS). VSP targeted Marine Majors and Major (selects) with 10 to 15 years of service, providing eligible Marines with a lump-sum payment based on rank and years of service. TERA targeted Marines with greater than 15 years of service with a reduced retirement pension compared to if those Marines had serviced to 20 years.

The analysis shows that VSP and TERA worked as intended, accounting for 255 separations—more than a year’s worth in the steady state—among Marine pilots and NFOs between 2013 and 2016. While Marine pilots and NFOs with skill-specific qualifications such as Weapons and Tactics Instructor and Forward Air Controller have a negative probability of taking VSP or TERA, general demographics such as gender, race, and marital status appear to have no effect on take-up of VSP or TERA. However, VSP and TERA affects the quality of those remaining in the Corps. While TERA incentivizes low-quality Marines to separate, VSP appears to incentivize high-quality Marine pilots and NFOs to separate.