Early retirement on the bargaining table

This time management wants retirement incentives reversed
By Roy Stuart and Catherine Graham
|Canadian HR Reporter|Last Updated: 01/27/2003

It wasn’t that long ago that “freedom 55” was a goal of both management and labour. Many employers provided early retirement incentives to help reduce — or, in some cases, renew — their workforces. Unions successfully pressed for rule changes to provide earlier access to employee pensions. Changes in government policy reinforced the trend by dropping the age at which people could access public pensions. And workers began thinking of retirement as the start of a new life, rather than the end of their usefulness.

Recently, however, there has been a rising chorus of concern about the future of the labour market in Canada — specifically, apprehension regarding an impending shortage of experienced workers. This fear is well-founded. Consider the following data from Statistics Canada:

•There has been a steady decline in the median retirement age of workers from 64.9 years in the late 1970s to 62.2 years in the early 1990s to 61.0 years in the late 1990s.

•The employment rate for workers between the ages of 55 and 64 has declined steadily over the same period.

•In the early 1970s, one in five Canadians was aged 50 or older. By the end of this decade, that number will be one in three.

•Many employers will see one-third to one-half of their management and professional employees reach early retirement thresholds in the next five years.

These facts have given rise to a concern as to whether or not there will be enough workers to ensure continued economic development and support public services. As a result, many employers and policy-makers are doing an about-face on the issue of early retirement and are seeking strategies to increase the workforce participation of older Canadians.

However, many unions continue to press for early retirement programs. From a union’s perspective, early retirement incentives benefit both older and younger workers. These inducements provide older employees with the financial support they need to begin retirement early, a desirable goal in the current Canadian culture. For younger workers, early retirement provisions can create job opportunities that otherwise would not exist.

Is there a middle ground between these prevailing attitudes on the part of management and labour towards early retirement? How can employers’ increasing wariness of early retirement incentives be reconciled with unions’ ongoing pressure to implement them?

Debating the cost of early retirement

Reluctance on the part of employers to provide early retirement inducements is also fueled by the fact that early retirement incentives are usually costly — a fact which is not lost on labour representatives. Small wonder then that employers are eager to do away with provisions that cost them money and leave gaps in their workforce.

Viewed in isolation, it certainly appears that early retirement incentives represent additional expense for employers. However, when considered alongside the potential cost savings that may be achieved by employing a younger workforce, early retirement programs may not be as expensive as they seem. Younger workers are often less expensive than the long-service workers they replace, given that they enter at the bottom of many service-related scales, like vacation entitlement and pay level, and because the cost of providing their pension and health benefits can be lower. Also, depending on the industry, increasing the number of younger workers can increase productivity.

And unions will still be collecting dues whether they are from older or younger workers.

Cost, therefore, need not be a major determinant of whether or not an early retirement plan is in place. Instead, labour and management can work towards a compromise on this question that addresses the very real concern of employers — the fact that skilled workers are leaving the workforce with no one able to replace them.

Holding onto a valuable resource

Older employees represent a valuable resource for organizations. Many of the workers expected to take early retirement in the coming years have spent their entire careers with a single employer. There is no substitute for the vast stores of knowledge accumulated by these workers over the years. When they leave, this valuable information goes with them.

What can employers do to bridge the gap? The following suggestions enable companies to maintain the numbers and the knowledge they need to keep going, while still satisfying employee and union demands for early retirement provisions.

1. Pay them to stay.

One way to keep people in the workforce is to compensate them explicitly for staying beyond the age of pension entitlement. Employers can do this through the payment of lump sum bonuses or other amounts for postponing retirement. This is a workable strategy, though employers must be aware that financial incentives do not always motivate the right people to stay and they rarely make a worker happier or more productive.

2. Adjust duties and schedules.

Many people love their work — or at least parts of it — but retire reluctantly because they no longer feel capable of full-time employment, or they no longer want to perform all the duties expected of them. Realizing this, some employers have successfully engaged valued older workers in a job redesign process, the objectives of which are to first identify and then remove unwanted or overly burdensome elements. The results of this process may include:

•Reduced or modified hours — This change can take many forms. Older workers may work part time or some other alternate work schedule. If possible, shiftwork may be eliminated. The objective of the new work schedule may be to accommodate the worker’s need or desire to reduce the demands of the job. However, the changed schedule can also result from re-engineering the job and removing some of its components.

•Job sharing — This may be an effective way to accommodate a revised work schedule or a reallocation of job duties. Job sharing can be linked to mentoring and transferring knowledge (as discussed below).

3. Recognize their value.

Sadly, part of the motivation for early retirement may be a feeling on the part of older workers that they no longer “belong.” This sentiment may be due in part to the different values of different generations.

However, this feeling of alienation may certainly be compounded by the myriad and profound changes in the way work is done as a result of the technological revolution. To surmount this reaction, some employers have sought to persuade older workers that they are valued not just for what they have done but also for the contribution they can make to the future, particularly through the help they can give to younger colleagues.

That assistance may take one of the following forms:

•Training — Older workers often have valuable skills and knowledge that can be transferred to co-workers, and they may appreciate the opportunity to do so. Having older employees devote some or all of their time to assisting in training programs can ensure knowledge isn’t lost and can reinforce the message that these workers are valued team members.

•Mentoring — Whether this occurs in the context of a formal mentoring program or not, it sends a powerful message to older and younger workers alike that experience matters.

•Succession planning — Having older workers, particularly managers, help identify and develop their successors may make more than just practical sense — it can give older workers a reason to stay on the job.

Time to bargain

Management will likely need to invest effort in making unions appreciate the need to reverse early retirement provisions negotiated during another era. But then, that’s the give-and-take of contract negotiations.

Some of these strategies may also require adjustments to HR policies. Employers may have to determine, for example, whether they will try to protect income levels on which entitlements are based if hours or compensation are modified.

The question may also arise as to whether there should be access to partial pensions under a phased retirement program. In addition, HR may need to consider making these strategies available to the employee population in general, rather than just to older workers.

It is possible to find middle ground between the two opposing views taken by management and labour on the early retirement issue, with results that satisfy both parties and meet the needs of employees. In unionized settings, the need to discuss the retention of older workers may be a lively part of negotiations in the coming years.

Roy Stuart and Catherine Graham are consultants in Hewitt Associates’ Vancouver office. They may be contacted at (604) 683-7311, roy.stuart@hewitt.com, catherine.graham@hewitt.com.

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