¶ … 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
29-Summary
32-Conclusion
33-Recommendation
REFERENCES
Definition of the Problem
-Introduction
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.
As Geisel (2004) notes: Income-tax deductions are worth the most to high-bracket taxpayers, who need little incentive to save, whereas the lowest-paid third of workers, whose tax burden consists primarily of the Social Security payroll tax (and who have no income-tax liability), receive no subsidy at all. Federal tax subsidies for retirement saving exceed $120 billion a year, but two thirds of that money benefits the most affluent 20% of
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