Rolling the Dice in an Early Retirement Incentive Plan
With the recent discussions in the news lately (and my recent post here) about GM's early retirement offer to 130,000 workers, the nuances of the design of these plans have come to light. Often, the criteria selected is somewhat akin to art more than science. In other words, the organization wants to create an incentive to get just the right number of people to willingly go, while at the same time keeping the employees with the skills that it needs. History is filled with stories of companies that designed such a plan and were astounded when too many employees opted in - the result being a brain drain that costs the company dearly.
Monday's print edition of the Wall Street Journal has at least part of the answer to the question of how to calculate the odds in buyout offers. According to the article:
"Companies must offer enough sweeteners to induce some employees - but not too many - to leave."
Thus, the challenge is to motivate the keepers to stay, avoid demoralizing staff, and avoid allegations of age discrimination. The article describes Electronic Data System's early retirement plan as enticing only a third of what was needed. Alternatively, Fedex' in 2003, was oversubscribed.
So what's the magic formula you ask? According to the article:
· How the plan is communicated
· Using sophisticate computer models to predict how many will go
· Creating a "hate to lose" list and creating incentives for those employees to stay
· Avoid multiple successive offers - this only puts your employees in a betting scenario - choosing to see whether to take the current offer or wait and hope that a better one comes along.