Voluntary Retirement Scheme1 115[1]

VOLUNTARY RETIREMENT SCHEME.

WHAT IS VRS?  The Voluntary Retirement Scheme (VRS) is the latest mantra of many a corporate and Public sector units.  VRS is a scheme whereby the employee is offered to voluntarily retire from his services before his retirement date.  Subject to certain conditions the company offers VRS to its employees It is the golden route to cut the excess flab.

THE GOLDEN HANDSHAKE 

The most humane technique to retrench the employees in the company today is the voluntary retirement scheme.

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It is the golden handshake for the employees and the only option today for the companies to downsize their headcount.

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The scheme which is formally permitted by the Department of Public Enterprises and which provides the lucrative way for the employees to terminate their services and accept VRS.

THE GOLDEN HANDSHAKE 

As the name suggests the VRS is strictly voluntary i.e. one can neither compel the workers to accept it nor apply it selectively to certain individuals.

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One can however choose the levels, units and age groups among whom one wants to offer VRS.

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The company can always accept or reject the application for the VRS.

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But usually this is not done in practical circumstances as it sends wrong signals to the employees. It might imply that the VRS is not actually voluntary but a selective procedure of downsizing.

TRADE UNIONS & VRS  Trade unions play a crucial role in introducing the VRS in any organized sector firm. The scheme cannot be implemented without, at least, the tacit approval of the representative union. Sometimes without the consent of the trade unions, workers legalize the VRS by accepting it en masse.  Very recently, the entire workforce of Sri Ram Mills (1,400 workers) has accepted VRS while the major union opposed the scheme tooth and nail. Other companies such as Ind Auto, SKF Bearings, Novartis, Biddle Sawyer, and Siemens have also been able to successfully reduce their workforce through the introduction of VRS. When the workers are convinced that the scheme is sufficiently attractive monetarily and/or the company is in deep crisis, they opt for the scheme.

TRADE UNIONS & VRS  When workers find the company's performance good, they refuse to accept the scheme. In such situations, trade unions through various strategies (for instance, by exposing the status of those workers who have accepted VRS) persuade workers not to accept the scheme.  A study by Shri Ram Center for Industrial Relations and Human Resources in 14 industrial centers of various states revealed that workers opted for VRS due to apprehension of closure of firms or personal reasons such as poor health, clearance of debt, marriage, education of children, etc.

TRADE UNIONS & VRS  Another study observed that complaints were recorded by some of the VRS workers who came for retraining under NRF that invisible discrimination affected their prospects for promotion in the organization where they were working. Thus, the atmosphere of discrimination and apathy towards the socially disadvantaged groups is also forcing most of the workers belonging to these groups to opt for VRS.

MORE ON VRS  Employers refer to VRS as 'golden handshake', trade unions call it 'voluntary retrenchment scheme', and for the government, it is 'unstated exit policy' which means that an exit policy which may not exist on paper. VRS is one of the strategies introduced in the early 1980s in central public sector undertakings (PSUs) to reduce the so-called surplus or redundant workforce. It gained publicity after the introduction of new economic policy in 1991.  In India, the government employs more than 70 per cent of the organized workforce; it uses all its channels to reduce the organized sector of the workforce without antagonizing the trade unions. It is envisaged in the new economic policy that VRS can provide minimum sustenance security to the retired individual and his family.

MORE ON VRS 

MAINSTREAM economists perceive voluntary retirement as a measure to shed the workforce whose marginal productivity is zero. Further, it is argued that this could be introduced in an industrial organization for maintaining its cost effectiveness in an increasingly competitive world.

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Moreover, voluntary retirement is accompanied by technological modernization that warrants the replacement of labor with capital. Technological modernization improves the productivity of existing workforce so much so that a section of the existing workforce becomes again redundant even as modernization enhances the installed capacity of the technology. The workforce that becomes redundant in this process has to retire or be retrenched.

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The rationale behind the introduction of voluntary retirement scheme (VRS) in India is that any organized industrial organization has to operate within the existing legislative framework, which does not allow the organization to shed the redundant workforce without adequate compensation

TECHNICALITIES  The Voluntary Retirement Scheme is a legal way to down size and thus it involves certain technicalities.  The VRS candidates must have worked for the organization for minimum of 10 years and also the age of the worker must be minimum of 40.  Employees not complying with these conditions still can apply for the early separation but it would not be counted as the VRS legally. Thus these employees won't be able to avail the benefit of tax exemption.  The employees receiving VRS can get the tax exemption for the amount of Rs. 5 lacs lumpsum.

TECHNICALITIES  The Voluntary Retirement Scheme is given tax exemption as per the following limits:  Three months salary per completed year of service  Remaining salary  Rs. 5,00,000  Whichever is least

TECHNICALITIES  Employees not complying with these conditions still can apply for the early separation but it would not be counted as the VRS legally.  Thus these employees won't be able to avail the benefit of tax exemption. The employees receiving VRS can get the tax exemption for the amount of Rs. 5 lacs lumpsum.  Anyone receiving more than Rs. 5 lacs would be charged under Income Tax Act

 Thus an employee opting for early separation and not fulfilling the age or experience criteria would be taxed on the whole amount he receives. However the lump sum amount could be lower of the following:  

Three months' salary for each completed year of service. The monthly salary at the time of applying for the VRS multiplied by the number of months left before retirement.

BENEFITS 

The normal benefits that an employee gets:

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Provident fund

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Encashed accumulated leave

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Gratuity

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Salary for the notice period

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Cost of transfer to the hometown

OTHER BENEFITS 

1. 2. 3.

Also to make the scheme very attractive for the employees the severance package as it is called can include other benefits like Medical insurance Housing loans Subsidies on children's education loans, etc.

VRS IS JUSTIFIED BECAUSE…..  Organizational adjustment at all levels has become extremely imperative. Over manning has crept into almost all industrial units on account of the inability of the enterprises to reduce or adjust workforce as per the business needs.  The sort of cuts that only happened in heavy industries has now become widespread. The days of nibbling away deadwood have long gone. It's time for the organizations to realign and focus on the core competencies

Hurdles in execution The Voluntary Retirement Scheme is not as easy as eating the cake. It deals with actual human beings. It deals with the lives of people who are offered to end the careers abruptly and probably do nothing for the rest of their lives. Thus a lot many problems can arise during the actual execution of the scheme. Some of the problems which could be anticipated and for which appropriate action plan could be drawn are:    

Non- acceptance of the VRS Over-acceptance of the VRS Operational problems Post-VRS blues

HURDLES 

Over and above these anticipated problems, there could be many more problems, which could arise during the execution of the scheme.

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These problems may be industry sector specific, industry specific, company specific or any other unexpected problems.

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The major hurdle in the acceptance of any scheme is trade union. The trade union does not easily accept such changes even if these changes are made for the genuine reasons. At the same time over-acceptance can cause a lot of problems, as it is visible in the PSU banks.

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Also due to ongoing retrenchment in the company, the company is vulnerable to all sorts of operational problems. And if the company does not provide for the downsizing the company must be prepared to face the post-VRS blues.

MEASURES The company can avoid or reduce the magnitude of any problem occurring due to the VRS scheme. There are certain aspects, which have to be kept in mind before offering the scheme. 

The company must have a genuine reason for the downsizing. It should not be a 'slogan of the week ' nor should it be to oblige blindly the conditions of the global partner. The company must be having some genuine reasons to offer the VRS and this is the first step in getting the things right.

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The company must conduct its manpower planning to analyze the manpower inventory it has in terms of number and skills and also the manpower inventory it requires to operate at the optimal level. This planning should be done considering all the aspects like automation, technology upgradation, new working methods like optimization of resources, total quality management, etc.

MEASURES  Depending upon the manpower planning the company should boil down to a number to be downsized and the period over which downsizing should be done. Keeping these figures in mind the company must move towards offering VRS scheme.  Communication is the most important phase of execution of any VRS scheme. The company should make an explicit announcement of the scheme all over the organization at the same time so as to prevent the spreading of any rumors  The trade union also should be taken into confidence and the all the facts of the scheme should be explained to them.

MEASURES  In the actual implementation of the scheme the different age limits are suggested for different levels and this concept has been extremely successful. The logic given behind this concept is that the people with higher skills retain their productivity for the longer time. Also since the qualified personnel are less in number than that of unqualified ones the model is designed in that manner. 

But this theory has received criticism of being biased for the upper class or being Brahminist. This issue is debatable but it has worked wonders for many companies.

MEASURES  Once the scheme is designed, the company should implement two-pronged strategy of identifying the VRS candidates and also identify the key performers. This can be done by empowering line managers and also through the system of performance appraisal. Once these candidates are identified, these employees should be counseled accordingly either to accept the VRS or to stay in the company.  Keep the promises you made, so as to implement the scheme smoothly. Include in the severance package different benefits, which would help employees to accept the scheme. Also offer the option of receiving the package in lumpsum or in the pension form or in combination.

MEASURES  Making the employees accept the scheme is not the only objective. Also the employees who stay in the company have to be motivated enough so as to keep going. For this key performers have to be individually counseled and also the retraining and redeployment program has to be drawn so as to keep the managers motivated and so as to adjust to the change in the organization.

Other Options Besides in order to alleviate the effect of the whole exercise, company should take up few measures that will help to maintain the morale of the existing employees. Some of the measures, which could be provided, are:  Outplacement  Help of placement agency  Counseling

OUTPLACEMENT:  It is the in-house help provided by the organization itself in order to help the employees during the transition phase from retrenchment to the resettlement. The company can play an important role by providing counseling, training, and all the other help required by the employees. Although this involves cost, however compared to the advantages obtained in return, it is negligible. It not only helps organization to convince employees to accept VRS but also helps in maintaining the morale of the retained employees. Moreover this exercise also helps in creating good corporate image of the organization that can help organization in the long term like future recruitment.

Placement agency:  Besides having outplacement facility a company can also take the help of placement agency. This agency can appraise, counsel and place the retrenched employees on deserving jobs. Also there have been practices where company purposefully asks the agency to tell nice things about the retrenched employees so that they will have the " feel good " factor to keep their motivation even after the retrenchment.

COUNSELING:  This is an effective tool to reduce the effect of the VRS. The retained as well as retrenched employees could be counseled to good effect to keep up their motivation level.

CONCLUSION  These techniques that are suggested above give the humane touch to the downsizing. This is very necessary because it is not only the posts that are downsized but there are human beings involved in this process.  This process should convince them that the posts in the organization have become redundant and not the person and the organization still values the person.  Since this process involves emotions and feelings, every care must be taken by the management that the process must be carried out in such a manner that it keeps the dignity of the employees but at the same time achieves the objective in a tactful manner.