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.

 It is the golden handshake for the

employees and the only option today for
the companies to downsize their
headcount.

 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.

 One can however choose the levels, units and

age groups among whom one wants to offer
VRS.

 The company can always accept or reject the

application for the VRS.

 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.

 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.

 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:

1. Provident fund

2. Encashed accumulated leave

3. Gratuity

4. Salary for the notice period

5. Cost of transfer to the hometown

OTHER BENEFITS
 Also to make the scheme very
attractive for the employees the
severance package as it is called
can include other benefits like
1. Medical insurance
2. Housing loans
3. 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.

 These problems may be industry sector specific,

industry specific, company specific or any other
unexpected problems.

 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.

 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.

 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.