It's been a few years since I say my friend back in Oz who works in the gov't. but she told me that she had to keep her own log of what was her privately earnt miles and gov't earned ones. She then had to redeem the gov't earnt miles when the balance was big enough. This was subject to audit controls and spot checks. The rational is that you earnt those miles using taxpayers (or the companies) money so they should benefit from the savings. The flyer was getting the benefit of status and priviliges they wouldn't of otherwise got.

With the amount of miles I earnt in my last job, the full fare equivelant would of been more than my yearly salary, so a very nice bonus for me! However I think that this didn't compensate me enough for the time I had to spend away from home. Catch 22. If my employer tried this I wouldn't of been loyal to any particular airline alliance and not bothered with the miles.