Civil servants share $6B 'severance' without losing jobs

The Harper government is in the process of handing out a jaw-dropping $6 billion in special "severance" cheques — plus a pay raise — to hundreds of thousands of federal workers who aren't losing their jobs or even changing desks.
Members of the Public Service Alliance of Canada demonstrate support for public services in Ottawa in March. Federal workers are starting to receive special payouts and raises to compensate for the loss of severance benefits. (Sean Kilpatrick/Canadian Press)

While federal budget cuts are sending some public servants to the unemployment line, most of those keeping their jobs will be laughing all the way to the bank with a pay raise and special lump-sum cheques of up to $150,000.

The Harper government is in the process of handing out a jaw-dropping $6 billion in special "severance" cheques to hundreds of thousands of federal workers who aren't losing their jobs or even changing desks.

Government officials say the average payout to date has been roughly $20,000, but the highest-paid government executives and military brass could be getting cheques up to $150,000.

Thousands of Canadian soldiers not even entitled to severance will be getting cheques anyway.

In total, the government expects to have cut cheques worth about $2 billion by the end of this year.

The payouts are part of the Harper government's move to scrap a long-standing public service perk that gives federal workers severance pay even when they quit or retire.

The government has agreed to compensate public servants for all of the severance they have accumulated to date at the rate of one week's wages for each year of employment.

Savings offset by pay raises

While the total payout to federal workers is expected to top $6 billion, the Treasury Board estimates that scrapping severance for those who quit or retire will save taxpayers about $500 million a year.

Treasury Board President Tony Clement, the federal minister responsible for public service compensation, defends the severance changes and payouts as short-term pain for longer-term gains.

"The savings for Canadian taxpayers are significant," he says in a written statement to CBC News. "The government is no longer liable for future accumulation of voluntary severance payouts that would continue to climb.

"This benefit does not exist in the private sector and there is a reason. It is costly and to perpetuate it would be unfair."

But those savings could be significantly offset by public service pay raises.

CBC News has learned that in exchange for getting rid of the severance provision, the Harper government is giving public servants a special 0.75 per cent increase in wages over three years, a move that will cost taxpayers hundreds of millions of dollars a year. The severance benefit was equal to an extra week of pay a year, or roughly 1.9 per cent.

Dan Kelly, head of the Canadian Federation of Independent Business, says the government is right to be killing the severance perk, but asks, at what price?

"To spend billions of dollars in severance package for people that are not losing their jobs, people that have the best form of job security in the country, that have gold-plated pensions to leave to, just seems nuts.

"This should be taken away from civil servants.… But to trade it off for higher wage increments, I think will not pass the smell test for average Canadians."

The union that represents the largest number of federal public servants said the severance for retirement and resignation predates collective bargaining and defended the compensation it negotiated to end the practice.

"The present government decided to end the accumulation of severance and negotiated a compensation package with some federal government workers," said Robyn Benson, national president of the Public Service Alliance of Canada.

"At the same time, PSAC negotiated stronger provisions for severance upon layoff so the thousands of federal workers this government is recklessly cutting have a better chance of continuing to pay their mortgages and contributing to the economy."

Toronto financial consultant Barry Ferguson represents a large number of public service clients getting the severance windfall.

"The payouts that we've seen that we're talking about are somewhere in the $40,000 to $80,000 range. So, you know, these are not life-altering amounts of money, but they can certainly be life-enhancing amounts of money."

Ferguson says most of his public service clients are being conservative with their unexpected windfall.

"In many cases, people have credit card debt, or small loans, or mortgage balances that they simply want to pay down, so we're really seeing kind of a broad spectrum."

Workers' choice: Get paid now, or later

The government is offering public servants the option of immediately cashing out their severance, or waiting until they actually leave their jobs.

So far, most public servants are opting to take the money now, and Treasury Board officials say that will reap big additional savings for the government.

Since severance payments are based on an employee's final pay rate, workers who opt to cash out now will cost the government a lot less than they would years down the road after many pay raises and promotions.

Meanwhile, Canada's 92,000 members of the regular military and reserve forces are getting a special break from the severance buyout bonanza.

In the past, Canadian soldiers with less than 10 years service were not entitled to any severance pay, and even those in the Forces longer received compensation at a much lower rate than the general public service gets.

No matter: All members of the regular and reserve Forces will soon be eligible for compensation for accumulated severance based on the same formula as the rest of the government — one week's pay for every year of service.

The public service windfall should not be confused with an additional $900 million in special severance being given to 19,000 federal workers who are actually losing their jobs to government cost-cutting.

Those workers are getting both the special severance connected to government downsizing, and the regular severance now being bought out by the government.