Early Retirement Packages: A Boon to Business If Handled With Care

Early Retirement Packages: A Boon to Business If Handled With Care

This article was updated on June 29, 2018.

Kroger, the second largest retail grocery store chain in the U.S., offered early retirement packages to 2,000 corporate employees, as reported by Supermarket News. Although Kroger said it didn't plan to replace those who accept the offer, the announcement raised questions about whether it makes sense to offer early retirement programs to high earners. But how can organizations make sure early retirement programs are offered in a way that doesn't disproportionately impact older workers?

Evaluate Before You Implement

A typical motivation for establishing an early retirement program is to reduce costs associated with highly paid employees. According to Supermarket News, "Kroger is committed to our operating model of lowering costs to invest in the areas that matter most to our customers." Early retirement programs, if done properly, can be a way to manage business costs and help long-term employees retire early. To determine if it makes sense to offer such programs, finance leaders should consider both the high, upfront investment in early retirement programs and any legal risks.

1. Run the Numbers

The first step is to consider the financial impact of an offer compared to any future savings in compensation. If the present value of the early retirement payout is less than the value of compensation savings, then early retirement packages may make sense. However, financial savings aren't the only reason to offer such a program.

2. Determine How Much Experience Matters

The second step is to consider how much the organization relies upon the experience of those workers who may be offered the incentive. It's possible that more experienced and higher-paid workers have institutional knowledge and intellectual property that are core to the business, which might not easily be replaced. Finance leaders can work with HR to consider how — and if — this experience can be replaced. If so, partner with HR to determine how to transition and pass down the institutional knowledge to new workers.

Once it's determined that it makes sense to offer an early retirement program, businesses must do so in a way that's legal and treats people with respect.

Early Retirement Should Be a Choice

Businesses that want to offer early retirement programs should consider these two factors.

1. Let Employees Decide

First, you should leave it up to the employee to decide whether they accept an offer. Although there's no guarantee that an employee who turns down the offer will keep their job indefinitely, avoid telling employees that their job is in jeopardy, especially if they fall into a protected class. While it's impossible to predict exactly how many employees will accept, set your program up for success by making it clear upfront that the decision is firmly in the employee's hands.

If you don't get the acceptance level you hoped for, consult with legal counsel about next steps, including whether to implement involuntary layoffs and, if so, how they should be structured.

2. Give Employees Notice

Early retirement packages often include a release that states the employee won't seek discrimination claims. Work with legal counsel to develop the necessary documents. And be sure to build in sufficient time to rollout the program and allow employees time to decide whether to accept it. Notice of up to 45 days may be necessary to obtain a valid release from potential claims.

Know the Law, Plan Ahead and Treat Employees With Respect

Early retirement programs can be an effective way to manage long-term business costs and benefit both the organization and its employees who could receive a financial incentive to retire early. Organizations that value long-term service of committed employees, and offer early retirement packages that reflect that belief, can use this tool effectively. However, such programs must be implemented properly.