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Evaluating ‘the package’

While at Xerox, a number of retirement packages made the rounds. A boisterous colleague across the hall dilly-dallied with retirement, constantly pushing for more sweetner. ‘The package’ can often be rich, the result of careful calculations that get employees to bite at the least cost to the firm.

In some ways, it’s a more humane way to Employers rid themselves of often higher paid employees, with more seniority and who are more thoroughly imbued with the firm’s culture. That’s good and bad, depending on how you look at it. Companies reduce salary costs, free up positions for succession (in a state of zero growth, succession depends on retirement), and can open up the gates to renew culture from the bottom up. On the negative, when greybeards get the axe, the company loses a huge repository of organizational and functional knowledge.
When such packages are used to cull the herd, they play on employee fears. It’s tacitly understood that if enough people don’t opt for the package, layoffs follow close behind. So in a sense, these packages take on aspects of a 3×3 matrix under game theory, where employees must make a calculated bet, comparing the current offer on the table to probabilities and expected values around continued employment or being laid off.
The New York Times details some of what’s been going on in the larger companies that have offered retirement packages. From this data we see that bolsters the view that the work world is changing for employees of all levels of experience.

At FedEx, 3,600 workers took an incentive package to leave in October, out of 14,000 who were eligible. Even more striking were the numbers at Verizon Communications a month later: 21,600 workers left their jobs, or 10 percent of the company’s work force.

Both companies said the responses easily achieved the goals that had been set.

Similar packages have been heavily subscribed recently at, among others, the State Street Corporation, a financial services company in Boston, and the Entergy Corporation, a network of utility operations with headquarters in New Orleans.

“We cannot underestimate the changing mind-set,” Ms. Hart [HR] said. “People are not viewing retirement incentives as an end to work.”

Employers are mindful that shrinking their head counts with early retirement packages is more palatable, both inside and outside the company, than wielding the ax of layoffs. And they know that years of job insecurity have conditioned workers to fear the worst, thus raising the odds that workers will leave if the incentive is rich enough - typically 40 to 50 percent of annual preretirement wages.

The workers taking early retirement often are in their early 50’s and say that they neither can afford to stop working nor want to. They embrace packages that give them full pensions years ahead of schedule, or severance equal to a year or more of full pay, or both. Although the current economic recovery is notable for an absence of robust hiring, these people are gambling that they can get just enough work to make up the lost income. Above all, they are lured by the promise of continued health insurance, fully or partly paid by the company.

It’ll be a test of the ‘free agent worker’ philosophy that some people advocate to see where these experienced folks, many who have just come off a ladder of rising wages and responsibilities, land for the next act of their career. Let’s hope we see more of them advising young companies… :-)

Source: New Incentives Persuade Many to Leave Jobs