Case Study Assessing the Use of Early Retirement Incentives as a Downsizing Strategy essay

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early retirement incentives as a downsizing strategy sUMMARY: This is a thesis that analyzes and studies the use of early retirement incentives as a downsizing strategy by organizations. It has 23 references in APA format.

Chapter I- Definition of the Problem

Definition of terms-alphabetical order

Chapter II- literature Review

Health and security

Tax deferral

Financial targeting

Institutional Rationale

Employees Impacted

Chapter III- Methodology

19-Data collection

19-Data analysis

Chapter IV- Data analysis

21-Analysis relevant to research

25-Analysis relevant to research

26-Analysis relevant to research

Chapter 5- Summary, Conclusions, Recommendations





Definition of the Problem


Over the last fifteen years organizations strived to renew their relationships with employees and at the same time tried to survive through economic downturn. In this renewal process these organizations have experienced multiple intricate processes like structuring, resourcing, forestalling decline in profits as well as incorporating new state policies. The struggle to survive hindered their actual target to create valuable environment for their workers. As a result they experienced low profits. In order to survive such a downturn management at the top often resort to the most effective and immediate means of recovery which include cutting down cost through downsizing. The first and perhaps the most effective strategy of downsizing had been of GE [General Electric]. Ever since its success, organizations throughout the United States and across the continent have followed suit. The trend may have been effective in GE but not all have the caliber and drive to organize an effective downsize. As a result many failed in their attempts.

On top of that demographics pattern indicate a generation gap, thereby declining the rate of savings and increasing the rate of retirees. In a study by Daniel Dulitzky [1999]

he predicted that the generation gap raised by baby boomers have changed the way organizations plan retirement programs for their employees. The alarming statistics have motivated companies to induce their employees to retire earlier then the required age limit of 65 years. The controversial issues in this strategy is the various incentives organizations use in order to lure employees for a golden handshake. All too often, early retirement proves ineffective and results in decline of the organization. What constitute the failure and what are the characteristic syndromes for inefficient early retirement incentives? Other questions involve, why organizations are keen to adopt this strategy instead of the downsizing and stoppage of new hires. Are there other better alternatives for rightsizing and how they can be achieved without levying high costs etc.

-Background of the problem

The process of early retirement, a strategy adopted by many companies serves to save them from paying more to retirees. Retirement plans like 401(K) and Social Security all aim towards savings for the working individuals. They are the allowance that they can utilize once they leave the professional field. In the last decade or so, the rate of savings have dipped, turned up again and dipped again several times. With this pattern, organizations are concerned whether they can sustain retirement funding. In turn they try to equip themselves with strategies to minimize long-term financial risks by inducing workers to retire early. These incentives include bonuses, stocks options, bonds etc.

Yet, whether early retirement is an effective strategy or not is still debatable. Studies show that [Wellner, 1999] externally when incompetent organizations realize that they need to downsize their immediate reaction is to eliminate job candidates. This has dual effects on the qualified candidate scenario. First of all the market become skeptic of the viability of the organization since it is generally accepted organizations that downsize have some financial problems. Secondly, those within the organizations become concern of their own position in the company for the reason that there is less and less chances of employment in the company. Those with qualified background do not hesitate to transfer their skills where they are required, that is they leave the company. Others who are not so confident of their own position become insecure and stick to their job, demonstrating better performance albeit inefficiently. As a result the organization make redundant of unqualified and undesired skills, in the process driving out the qualified skilled workers away as well. Early retirements therefore is a motivation to drive away skilled workers even though it is originally aimed at older workers with the theoretical background that they do not perform as well as the younger workers. These organizations do not realize that in the process they are also driving away their best people.

Thus, as organizations increase their endeavors to downsize "the amount of attention being paid to how organizations deal with early retirement issues has increased as well In large part, that research has focused on how organizations structure, and how older employees respond to, incentives to accept early retirement"(Feldman and Kim, 2000; LaRock, 1999; Longo, 1999).

Once established, the incentive strategy often worked as the common solution for high salaried employees. Those working in IT sector especially have gained financial status for retirement early on in their careers. Most feel compelled to start a new career using early retirement funds. The shift of interest rates, the motivation to retire early as well as the comprehension of how retirement plans works without deferring taxes have motivated a lot of young individuals to retire and enjoy a leisurely life or start a new career. Organizations on the other hand find it hard to search for the desired skills needed to replace the retired employees

. Yet employers will refrain from hiring older workers "even if an older person studies to get qualifications, employers will usually choose a younger person." According to the Employers' Forum on Age, two- thirds of information technology workers fear that they will be unable to get a job in IT once they pass 45 [The Economist, 03-23-2002, pp 27]. Furthermore, in a recent survey by the National Council on the Aging (NCOA), experts found that one out of four workers aim to retire early when they can afford it. This trend is aimed at their portfolio as well. Most of the retirees feel they need to be in control of their career. When they earn so much per year due to skilled work, they are most likely to join the early retiring group because they can finance their "life after retirement" standard of living. Only one concern is left and that is how much funding will they need and how will employers deal with it.

-Purpose of the study

Keeping the above background in mind the purpose of this study is to analyze whether the effectiveness of early retirement incentive strategies are as potent as it was viewed earlier during the 1990s when the first wave of realization occurred to organizations to induce individuals to retire early. The basic motive of organizations then was to adopt a risk free strategy and to save up on costs in terms of salary expenditure and long-term investments. However, today the working environment has changed. The study will revise the working environment, the kind of workers prevalent and the trend existent in today's environment. The purpose is to provide organizations that endeavor to take up early retirement strategy as a strategy for minimizing financial risks in the future. It will provide the viability of taking such steps. The study is an assessment therefore it will provide the logical as well as statistical background of taking such steps.

-Problem Statement

It is the aim of the researcher to provide a comprehensive implication of early retirement strategies on organizations given the technological and legislative environment of today. The above background therefore provides the basis for research for the following hypothesis questions:

-Research Questions

1. What are the ramifications of financial risks in terms of human resources and financial costs when firms utilize early retirement strategies?

2. Are early retirement incentive strategies more effective to regain financial stability?

3. Why are early retirement strategies preferred by employees instead of employers?

-Definition of terms-alphabetical order

Some definitions of terms regularly used in the course of this research are as follow:

Benefits- include financial benefits, medical care, and social security.

Early retirement -- the term used for retiring individual before the normal retirement age of 65.

Older workers -- refers to employees who have exceeded 50 years of age but are not matured for retirement benefits.

Penalty -- the punishment for withdrawing funds from a government program before its maturity. The lost of interest returns is punitive to the retiree and he/she has to pay to the government.

Pensions -- the fixed amount of income offered by the government to the retirees.

Qualifications- academic as well as job qualifications.

Skilled workers- workers with specific skills like Information technology.

Resources- include sources of funding, skills and technology for the smooth operation of the company.

Risks -- the danger pose to the company that may result in disruption of operation.

-Limitations of the study

The research is designed to educate managers contemplating the usage of early retirement programs as a…[continue]

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