I suppose technically the abolition of the default retirement age counts as de-regulation, but employers won’t see it that way.
They certainly won’t. It effectively removes one of the last remaining ways in which employers can get rid of people without going through all the messy business of performance management, consultation or negotiation.
The fixed retirement age was brilliant. If you had some people who were not shaping up, or who were not really up for the latest corporate change, if they were around sixty-three, you only had to put up with them for a couple of years and then you could shove them out of the door. No performance reviews, no awkward conversations, no negotiations with stroppy union reps, no haggling over payoffs. All you had to do was organise a whip round and make a speech. Problem solved.
Over the past fifteen years or so, the options available to managers wanting to get rid of older workers have diminished. Back in the 1980s, managers in large organisations routinely used various versions of retirement to buy their way out of trouble. Back then, company pension schemes were flush with cash; so much so that many firms took contribution holidays. Early retirement could often be granted from the age of fifty. That was a gift for managers who wanted to clear the ‘dead wood’ out of their departments. You didn’t really have to worry about performance management for people in their 50s. If you thought they weren’t performing you could early-retire them. And yes, it did become a verb. Again, no difficult conversations, just raid the pension fund and get rid of all your lemons.
As Richard Wachman and Tim Webb noted, this was a favourite trick of the soon-to-be-privatised utilities:
At the time of the sale of British Telecom, thousands of unwanted staff were offered early retirement rather than redundancy by ministers who saw the company pension scheme as a no-cost solution to cutting jobs. It was a trick repeated many times during the 1980s as government-owned businesses were slimmed down in readiness for sale to the private sector.
Alas, the pension funds are no longer fat with wealth. Thanks to the recklessness of the 80s and 90s, many are now under-funded. Even in the public sector, the use of pension schemes to bribe older workers to leave without a fuss is a strategy with a limited shelf-life. And the fixed retirement age is about to go too. The aggro-free opportunities for getting rid of sixty-somethings have all been closed off. This means that managers will actually have to start managing the performance of older workers.
This will be a challenge, as Tony Clack said a couple of weeks ago:
What will such changes mean to an organisation if it no longer has the safety valve of being able to let a proportion of staff go with no redundancy costs? They may now have to focus on getting rid of the least effective staff – not just the oldest – and put more emphasis on ability measures and proper performance management.
Retirement experts at Mercer agree:
To date, some employers have used age-based retirement as an alternative to performance management…..If employees can decide how long they stay in the workforce – subject to there being a job, and satisfactory performance –employers will need to refine their performance management processes.
However, for employers, the change will mean that the same grounds for dismissal will be needed for an older employee as for someone younger – generally redundancy or performance. Employers will be unable to use age as a basis of dismissal without risking a suit for age discrimination, which carries unlimited liability.
In other words, employers will have to manage the performance of older workers in just the same way as they do for everyone else. If there is even a hint that a dismissal might be for age-related reasons, rather than performance, it could cost the employer a hell of a lot of money.
This could present a problem for some managers. Performance management conversations are difficult enough as it is but there is an added complication when it comes to dealing with older workers. Even in today’s youth-worshipping society, there is still a residual deference for age. Many of us are still uncomfortable telling someone who is older and has more experience that they are not shaping up. Conversations about performance with those older than ourselves tend to feel that bit more embarrassing. Which, of course, is why so many managers in the past have used retirement as a way of avoiding them.
Update 06/09/2010: 75% of the employers questioned in this survey were concerned that staff might refuse to retire even if they were no longer up to the job.