Early retirement policies consist of two features: (1) a package of financial incentives that makes it attractive for senior employees to retire earlier than they had planned and (2) an open window that restricts eligibility to a fairly short period of time. After the window is closed, the incentives are no longer available.23

The financial incentives are usually based on a formula that accelerates senior employees’ retirement eligibility and increases their retirement income. It is not unusual for companies to provide a lump-sum payment as an incentive to leave. Many companies also offer the continuation of health benefits so that early retirees enjoy coverage until they are eligible for Medicare at age 65.

Early retirement policies can reduce the size of a company’s workforce substantially. For example, Progress Energy, a public utility company headquartered in Raleigh, North Carolina, had a stronger response to an early retirement program than was expected.24 As a result, the company had to hire additional people to make up for the shortfall.

When not properly managed, early retirement policies can cause a host of problems. Too many employees may take early retirement, the wrong employees may leave, and employees may perceive that they are being forced to leave, which may result in age discrimination complaints.

One way to avoid excess resignations is to restrict eligibility to divisions that have redundant employees with high levels of seniority (instead of making the policy available to all employees throughout the corporation). Another way is to ask senior employees how they would respond to a specific early retirement plan. If too many would leave, the incentives could be fine-tuned so that a controlled number of employees take early retirement.

Sometimes the most marketable employees with the best skills can easily find another job and decide to “take the money and run.” To avoid this situation and keep its most valuable people, the company can develop provisions to hire back retired employees as temporary consultants until suitable replacements can be promoted, hired, or trained.

Early retirement programs must be managed so that eligible employees do not perceive that they are being forced to retire and consequently file age discrimination charges. Situations that could be interpreted as coercive include the following:

• ▪ A longtime employee who has performed satisfactorily over many years suddenly receives an unsatisfactory performance evaluation.

• ▪ A manager indicates that senior employees who do not take early retirement may lose their jobs anyway because a layoff is likely in the near future.

• ▪ Senior employees notice that their most recent pay raises are quite a bit lower than those of other, younger workers who are not eligible for early retirement.

A former employee who sued IBM for age discrimination was awarded $315,000 in compensatory damages because he convinced the jury that he was forced to take early retirement.25 The employee introduced evidence showing that his job had been reclassified after he voiced some reservations about taking early retirement. Shortly after that, he claimed, he received a warning that his next performance evaluation would be unsatisfactory.

Managers can avoid lawsuits by following one simple guideline: All managers with senior employees should make certain that they do not treat senior employees any differently than other employees. HR staff members play an important role here by keeping managers aware of the letter and the spirit of the early retirement policy so that they do not (consciously or unconsciously) coerce senior employees during the open window period.