The effect of a graying workforce on succession planning

The American workforce is growing grayer. As a result of the recession and the slow economic recovery, many older workers are delaying retirement and staying in the workforce in record numbers.

According to the U.S. Bureau of Labor Statistics, the proportion of workers age 55 and older will increase steadily from 12% in 2000 to 20% by 2025. In fact, older workers make up the fastest-growing segment of the workforce, with nearly one in five working or looking for work - the highest labor force participation rate for this group in more than 50 years.

"With the Great Recession, many people saw their retirement savings cut substantially and are still in the process of making up the losses," says Jill Jacques, principal at The North Highland Company, a global consulting firm. "For financial reasons, they had to continue working because they knew they would outlive their savings, given cost of living increases and longevity concerns."

While delaying retirement will certainly improve the finances of the older workers, it is not without a trade-off: In this lackluster economy, baby boomers are staying in the workplace longer, which means fewer jobs and advancements for their younger counterparts, not to mention the strain on health care costs for companies as older workers stay on the plan.

At least that's one theory why health care costs are rising and why younger workers are struggling in the current job market. But research suggests the opposite.

The Pew Charitable Trusts' Economic Mobility Project shows that, though younger workers may be hurting right now from the economic downturn, over the longer term they tend to gain jobs alongside older workers. From 1977 to 2011, the report finds a one percentage point increase in employment among workers age 55 to 64 was associated with a 0.2 percentage point increase in the employment rate for 25 to 54 year olds, and a 0.21 percentage point increase for workers ages 20 to 24.

So in a time that an estimated 12 million Americans are unemployed, are older workers really the ones hurting the younger generation?

 

The new retirement normal

Americans weren't always expected to leave the workplace early. In 1880, 78% of men over age 64 were still in the workforce. But by 1990, only 30% of men older than 64 remained in the workforce.

Sharon Emek, CEO and president of Work at Home Vintage Employees LLC, attributes older workers beginning to stay in the workplace longer again to a simple answer: people are living longer. In 1934, when President Franklin Roosevelt originally introduced the current retirement system, the official retirement age was 65 years old and the average life expectancy was 67 years old.

"In generations past, most people died before reaching 65," Emek says. "Now one in eight Americans is 65 or older and their average life expectancy is 84. People just need to support themselves for a longer period of time."

It's not just the financial aspects or the increased life expectancy that's driving the longer time spent in the workforce. Retirement is one of the biggest emotional decisions of one's life, says Rudy Karsan, CEO of Kenexa, an IBM company that produces social HR and talent management software. Traditionally, retirement planning focused on the savings needed to retire; however, the psychological planning is just as important.

"Just the name 'golden years' is a bit of a misnomer as it implies that you are happy - but most humans are not happy with nothing to do. They get bored, sick, tired, feel useless and get depressed," Karsan says. "I think more and more individuals understand that impact and are staying in the workforce longer because we humans have an internal yearning to remain a contributing member to society."

 

 

Fewer jobs for the young

There's no shortage of coverage about the impact the recession is having on young people's advancement in the workplace. With older employees staying in the workplace longer, employment potential, income increases and promotion possibilities may seem more limited for younger workers. What's more, older employees have also been known to hold positions far beneath their experience level, which hinders recent college graduates from finding available entry level jobs.

"Getting a job has proven harder in today's economy, since there are fewer jobs being created than in boom years," North Highland's Jacques says. "And, younger workers have less work experience, less knowledge about how to perform a job search and fewer networking contacts."

But advancement does not appear to be as important of an issue for younger workers as is getting a foot in the door. According to the Government Accountability Office, throughout the Great Recession, unemployment rates for ages 25-54 have ranged from 8% to 8.5%. More so, a 2010 USA Today analysis found that the portion of people ages 16-24 in the labor market is at the lowest level since the government began keeping track in 1948, falling from 66% in 2000 to 55% in 2010.

"Once in the door, however, companies still look to results, innovation, teamwork and hard work when considering promotions," Jacques says. "In fact, because of the technical knowledge and ability to multitask, younger workers may actually have an advantage up for promotion."

But some experts believe that even if there was a mass exodus of boomers from the job market it would not necessarily make for a seamless transition to a younger workforce. In fact, Jacques believes it could require a rebalancing of workers, as younger workers lack judgment and problem solving acquired from years of experience.

"The institutional knowledge of seasoned employees is a valuable asset. They have weathered economic downturns, leadership changes and fierce competition," she says. "These are lessons that can be learned by the younger generations to ensure mistakes are not repeated and opportunities are seized."

Jacques adds that companies need to ensure there are ample projects and opportunities to integrate the newer and veteran employees to cross-train on technical and operational knowledge, but also on the intangible assets of resilience and adaptability.

 

 

Strained health care costs

The Bureau of Labor Statistics predicts that by 2018, 25% of the workforce will be 55 and older. The National Institute for Occupational Safety and Health reports that older workers are less likely to have accidents on the job, but that when they do, their recovery tends to take longer. Even more, an AARP study reported that only half of working seniors say they are in good or excellent health.

Simply put, as people age, they are larger consumers of the medical system, particularly regarding premiums and claims. Older employees have greater probability of medical issues, and more expensive issues, Kenexa's Karsan says.

"Health care costs for an average person in their mid-60's can be two to three times that of a 40 year old, and a person who is in the last year of life will probably be at 80% consumption of the total medical bills," he says. "There is nothing society has done so far that can stop that aging process in a human. As we start to age, we need more maintenance, and that puts more stress on health care costs."

Tom Muldoon, director of retirement investment services at L.R. Webber Associates, Inc., says the younger generation is more likely to participate in company wellness and fitness programs than older employees.

"The younger employees, when given a choice, may select medical programs with higher deductibles, thereby self-funding part of the costs themselves instead of the company picking up the costs," he says. "It is a matter of the younger generation feeling that they are less prone to injury or illness; generations that grew up with 'normal' preventative medicine practices and the reality that time does catch up with workers' health as they age."

However, some health care costs are actually higher for younger workers due to state mandates, and expanded mandates associated with the Patient Protection and Affordable Care Act. Jacques says that four out of five of the most expensive state mandates include infertility services, mental health coverage, alcohol treatment and substance abuse treatment, which are higher claims for younger workers.

WAHVE's Emek adds that although older people may have more medical issues and take longer to recuperate, these are not the only factors driving up health care costs.

A white paper released by the Bipartisan Policy Center's new Health Care Cost Containment Initiative finds that health costs in the United States will increase in the near future due to population growth, utilization and intensity of health care services, and increasing prices. Specific drivers detailed in the report include: fee-for-service reimbursement; fragmentation in care delivery; administrative burden on providers, payers and patients; population aging and rising rates of chronic disease.

 

 

Succession planning

Emek believes it's not the older workers hindering jobs from their younger counterparts, but an antiqued system that needs updating.

"I think there is a disconnect with young people that they should be at the pinnacle of their career by 30 years old. The career cycle needs an update," she says. "Since the young generation will live even longer than us today, they will need to think of a longer-term career or careers."

Tonushree Mondal, principal at Mercer, believes that every organization should have a natural cycle of the talent pipeline flow, where leadership roles are opened up for more qualified high-performing individuals who have risen through the organization, regardless of age or a lackluster economy.

"Unless there is active succession planning, the 'blocker syndrome' may exist where a solid citizen in a leadership role may be preventing more high-potential talent to emerge from within and take on these leadership roles," Mondal says. "This can be detrimental to the organization, as well as to the promising talent pool that is waiting in line."

But, Kenexa's Karsan believes that the drivers around succession planning are going to have to start with innovation, the use of social technology and big data in order for employers to start making very different decisions around the workforce and create a more competitive advantage.

"Many organizations are now going through a massive level of shrinking of their workforce while their revenues are not materially affected, while their margins are reducing, and the cost of food is climbing either due to inflation or too much scarcity," Karsan says. "So there is no cookie-cutter approach that will work."

For example, Karsan points to an entry level person joining an organization such as Lowe's or Home Depot. Years ago, an entry level person would join the team as a cashier and then move up to shift supervisor after a few years, and then eventually become the manager of the cashiers. But retail in the United States is shrinking and there are more self-checkouts available. The old model of moving a cashier through the ranks as part of succession planning no longer exists.

"Organizations are going to have to tear up their old stuff and figure out a way for a better methodology," he says, "rather than thinking about people coming into organizations and being on a conveyer belt with tenure and skill set determining their next position."

Overall, succession planning is not a one-and-done activity. Leadership development, cross-functional training and individual development are all critical elements to successful succession planning, North Highland's Jacques says. Given the institutional knowledge and intellectual capital of older workers, a company must have a continual process which proactively monitors key skills sets and job functions.

"Succession planning is a part of employee development," she says. "Mentoring, coaching and professional development plans are critical to not only succession planning, but for employee satisfaction, retention and economic growth."

Shelton Harris is an Alabama-based freelance writer.

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