Why would company (decision makers) wait for someone to retire, rather than lay them off, when their role is no longer needed?

Question

I'm asking about companies'/managers' reasoning in general, rather than about the policy of a specific company. This is something I've come across a number of times, in/about various different companies.

Typically where the work being done by a particular 'role' is no longer needed, ceases to exist etc then the role/employee holding the role would be laid off / made redundant.

However... several times I've observed companies where an employee at the older end (e.g. age 60+) is in a role that would normally be laid off / redundant (legitimately, i.e. that role is no longer needed in the company and the person wouldn't be replaced) but the decision makers at the company opt to "wait for the person to retire" rather than lay them off.

The longest time period I've seen this happen over was about 5 years! (i.e. the person was 5 years from retirement but their position was already obviously no longer needed, due to changes in the company (mergers and acquisitions, 'synergies', etc).

• There were several rounds of layoffs where numerous other people ended up leaving the company, but this person was not, surviving several rounds of layoffs, even though it was apparent to everyone that their role wasn't actually needed any more. (Not very good for motivation for those left behind!)
• When the person eventually retired, they indeed were not replaced. There wasn't even any need for handover of any tasks (as the person wasn't completing any at that point).
• (Edited to add, from discussion in the comments) There were several reasons the role was (in my view) obsolete, including: duplication of workload with the (acquiring) parent company; obvious lack of day-to-day tasks; my previous experience of seeing similar roles laid off; a "re-structuring" that preserved this role (and this one only) as an "exception" with no justification; job title/responsibilities had no bearing on actual responsibilities e.g. a "purchasing manager" who didn't have any purchasing workload.

My background is the UK, but this may apply to other countries as well.

Question: Why would the decision makers at a company "wait for the person to retire" rather than lay them off?

Things I've considered:

• cheaper to continue paying their salary than severance payments? (but unlikely unless they have very long service and exceptionally generous contracts) - e.g. their salary may be another £30,000 (for example) * 2 years plus overhead for employers costs which could easily be nearly £100,000 - I'm sure almost no severance payments are that high!
• compassion for the employee who would then struggle to find another job 2 (or so) years before retirement?
• what about the effect on morale of the remaining staff members, who have seen colleagues laid off or lost their own jobs, when the company seems to be 'carrying' someone who is ostensibly not contributing anything.
• I'm confused because layoffs are supposed to be about "the role", rather than "the specific person holding the role".
• (edited to add:) perceived age discrimination? Laying off someone because they are 'older'? (but surely easy to disprove based on the facts about their actual responsibilities etc?)

In case it matters: my experience is mostly with "medium size" companies e.g. 50-200 people, the parent company mentioned above had over 1000 people.

Answer 1

It's challenging to speculate about why particular decisions are made, even if you're able to observe directly - so, as a potential frame-challenge to your question, it's worth considering that you may not be correctly attributing a given decision to the right factors.

But generally, there are lots of reasons why management might make these decisions:

• Keeping someone on payroll is a lot cheaper than dealing with a wrongful termination lawsuit. Even the most obvious redundancy has the risk of turning into a lawsuit, but people who will be especially angry about a layoff ("you're laying me off right before I retire!"), or who may fall under a protected status ("you're only laying me off because I'm old!") may be seen as too risky to lay off.
• Keeping someone on payroll may change the regulatory requirements your employer needs to comply with. In many jurisdictions, there are laws that dictate how layoffs must be handled, and in some cases the requirements change depending on the number of layoffs - so, some "obvious dead weight" may be retained simply to keep the layoff under those cutoff points
• Keeping someone who will retire soon on payroll may be a humanitarian decision, from the perspective of ensuring that employee doesn't have issues with healthcare coverage or access to a pension or other retirement benefit - in many cases, getting laid off only a year or two before naturally retiring can be devastating, compared to getting laid off when you're a long ways from retirement and have time to recover. This challenges your assumption that layoffs are "about the role, not the person" but decision makers don't always heed the assumptions of their employees.
• Even if it appears that there's redundancy, or overlap, between one person's responsibilities and those of another employee or team, there may be reasons to keep the extra capacity - maybe there are performance issues with the other party, or the work is seen as risky so it's worth keeping extra bandwidth, or some other extenuating circumstance that justifies more capacity than it takes to complete the actual tasks on hand.

Answer 2

You seem to be thinking of this from a very cold perspective. That's probably a good way to get into the "mind" of a corporation, but since the decision-makers are actual people they may not respond quite that way.

For example, your point on morale suggests that morale would be higher with larger and more intense layoffs than with smaller, less aggressive ones. People are unhappy with huge layoffs. With those two options, I know that I'd be happier working for one making the latter choice rather than the former.

Anyways, there will be lots of potential reasons and they will vary by employer and situation. Some possibilities:

• Optimism about transferability of skills. Some employees may have a bit more flexibility in what they can offer the company for their salary. A decent manager probably has some broadly applicable skills and can transition to new work still useful to the employer, while a coder specializing in legacy systems using an otherwise deprecated language might not be as easy to reassign if those legacy systems are retired. Whether or not those transitions are executed successfully isn't relevant to the expectation that they might be at the time of deciding who gets laid off.
• Decency. This varies a lot from person to person, but on average if someone is a couple of years away from retiring (at the typical retirement age), laying them off may be a death sentence for their career. It's hard to get hired as you near retirement age, and suddenly losing stable income and being forced to take whatever stopgap jobs might be feasible can be the difference between a comfortable retirement and an unstable, hand-to-mouth end of life. These issues are not as acute for younger workers, though other issues may exist.
• Legal exposure. Whether or not the conclusion is actually correct, a layoff that forces out a disproportionate number of older employees can be credibly described as age discrimination. Since job responsibilities and department roles can be changed to suit the employer's needs, it's hard to prove that age discrimination wasn't the reason. Even if such a thing could be proven, the costs of a lawsuit can quickly become exorbitant.
• Severance. This one varies a lot by situation as well, but laying off an employee means you'll get absolutely nothing from them going forward, but will still have to pay some portion of their salary in severance payments. It may well be more cost-effective to employ someone for longer, paying somewhat more than the severance amount, and get more than nothing from them in return. It won't always be the case the numbers would work out that way, but it could be a factor in some firms' decisions.
• Institutional knowledge. Employees that have been with a company for a long time (not necessarily near retirement age) are likely to have gained a lot of institutional knowledge, information about how the company operates under various circumstances, what its needs are, and so on. Even if it doesn't touch on their old job description very much, it's possible that their insights could be more valuable due to that knowledge.
• Personal loyalty. People build relationships over time, and if an executive with influence over distributing layoffs likes someone, they may put their thumb on the scales to protect that person.
• Imperfect efficiency and fungible needs. Companies are not perfectly efficient, before or after layoffs, and even if it's possible to make a case that an additional job could be cut that doesn't meant that that job must be cut. If you could justify cutting positions A and B, but the needs the layoff is addressing require only one of them to be cut, then the laid-off person will have a valid-enough complaint that the other position remains. That person would not be better off with both positions being cut, and the company itself might not be either.
• The purpose of layoffs. Layoffs are not about "the role" or "the person". They are about overarching financial and competitive needs, which a layoff may help address. The company is cutting staffing in pursuit of a specific goal, and as above that goal does not necessarily involve minimum possible staffing. Reaching that goal may or may not involve eliminating those jobs and employees which you, user104682, happen to value the least.

There exist many possible other reasons, including exotic ones like "the employee has blackmail material on the person that can lay them off". The generic answer to this question is that "those companies feel that the best decision involves not laying off such individuals, for reasons that are specific to that company".

Answer 3

In addition to the other answers which contain many true things, these "old timers" often have soft contributions that are difficult to measure, but which are important. Some examples depend on the exact role they have worked in:

• They may have long-standing relationships with customers, which are useful intermittently and hard to replace
• They may have deep knowledge about certain parts of the company, be they process or legacy systems or etc., so can function as a knowledge source
• They may have a particular, highly specific skill which is useful rarely but effectively, and is hard to replace (and perhaps not worth replacing, but worth taking advantage of if you have access to it)

Answer 4

Basically, because not all business decisions are made with a ruthless eye on only the bottom line: some are made with a sense of compassion and humanity. If keeping the obsolete worker on roll would bankrupt the business, of course the old guy would generally be out of luck. But in human terms that desk and that salary may be worth a lot more to him than it is to the company. He’s not hurting anything, and he might contribute experience or tribal knowledge. Some managers would be glad to just let him run out the clock.

Answer 5

Sometimes it's just the decent thing to do. If a person has given a large portion of their professional life to the company, its not unreasonable to treat them well.

When a 60 year old is laid off, do you believe it's easy to go find work? A company that believes in treating their people well is a good company to work for.

Answer 6

In many jurisdictions making someone redundant is somewhat hard - deliberately so - precisely to protect employees from unscrupulous employers.

Some of the UK (your location) specific laws are summarised here

In short, for a hypothetical 65 year old employee who has been employed by the company for 20 years, they will be legally entitled to:

• 12 weeks notice
• 30 weeks redundancy pay or £15750 (whichever is lower)
• Consultation with the employer on their redundancy - for larger redundancies (>20 people) there are specific rules on how to do this
• A right to suitable alternative employment (if it exists)

These are minimum legal requirements. Many contracts will come with provision (well) beyond this, possibly as an inducement to potential/current employees, a result of negotiations e.g. with a trade union, or to protect the employer.

Therefore it can quite often cost a surprisingly significant amount and take a surprisingly long time to make someone redundant, if you are even able to do so. Companies may then make the judgement that it is better to allow someone to work to retirement, especially when you accont for the factors mentioned in the other answers.

Answer 7

One conception of a company is to provide for its employees. Americans often think of companies as having a singular goal: profit. But even then, profit for who? Sometimes companies focus on profits for employees rather than for a CEO or stock market investors. If the goal of a company of people is to provide for said people, of course you'd prefer retirement. Another way to think of it, some companies are in the business of society building. Profits for the 1% and gruel for the rest is not the only to run a business.

Answer 8

Continuity of institutional knowledge. It really matters when you have someone who understands every aspect of your business, and how all the pieces interact, and what's gonna move if you pull a string. Inexperienced people will blunder around and make a lot of costly mistakes, that the old guard could say "In '93 when we tried that, this is what happened."

For instance, google "strang yard meltdown". Strang was a small railyard in Houston that specialized in serving local plastics plants. Southern Pacific tried to shut it down and serve everything out of their main yard. Trains instantly backed up, and SP very quickly realized their error and fixed it. Ten years later, Union Pacific bought SP and fired all the old-guard.

Tenure, pensions, and retirement. In large companies and government, companies would provide a lot of support to career employees when they retire. To fire someone before they fully vest in these programs cheats them out of a fortune. And it's is a virtually guaranteed wrongful-discharge suit with so much money at stake. It's thought to be cruel and sadistic, when other options exist, such as laying off an expendable intern or contractor, and putting the elder on the job.

Answer 9

One thing I haven't seen mentioned in other answers, Karma.

If you feel as though you may yourself reach this point later in your career, having a track record of getting rid of people near retirement age because they are no longer necessary may come back to haunt you.

Fostering a culture where those near retirement age and have been with the company for a while are kept on the books until they reach it is smart from a self preservation perspective, as well as those reasons already mentioned in the other answers.

Answer 10

Given increased life expectancy and acute shortage of skilled labor in many industries, it is more beneficial for employers and society at large to retrain older employees instead of just laying them off.

Also in many countries in continental Europe, what you have suggested may be impossible thanks to trade unions or even illegal to do so.

The inability of older employees to be as productive as younger ones are often exaggerated - societal prejudice often encourages older employees themselves to give up too easily I guess

Answer 11

To add to dwizum answers, a couple more suggestions :

• Perhaps he or she might have political support higher in the company for keeping him or her in the payroll

• Perhaps he or she is expected to resign ? A sadly common practice in France for employers with older staff, in order to avoid paying costly packages, is simply to shunt aside employees leaving them with no work to do and expecting they would give up and resign (this is considered harassment, but doesn't prevent the practice to exist).

Answer 12

In addition to the other answers: It makes the decision easier.

When you will eventually get rid of the position, but you do not know when, it is easy to couple this with "When X retires, we will not get a new person for the position".

This may mean, that you pay a bit longer than needed for the position, but on the other hand you avoid the risk for being responsible for a layoff that causes trouble because the person did things that were still needed. When the person retires, it is not your decision that caused this trouble. Of course you may be responsible when you did not get them to coach others, but it is way harder to blame it on you.

Answer 13

There is a simple financial reason. Laying people off entitles them to redundancy pay in the UK, which is often quite a lot for older employees who have built up many years of service and have high salaries.

If they retire they get nothing, the pay-out is only if they are made redundant. So rather than pay out a lump sum in one hit, which could easily be more than a year's salary in some cases, they simply wait for them to retire and make the best use of their labour in the mean time.

Answer 14

I see two additional reasons not yet mentioned (not the way I am presenting them):

• the labor productivity of a given single person is not linearly related to its payroll. In many domains (including software development), a person A can be 10x time more productive than a person B, but costing just 1.5x times as much as B. To say it in other words, the statement that there is an efficient job market is an illusion. Things are much more complex in real life. The job market is not entirely economically efficient. And productivity is hard to measure: a person apparently not doing anything directly useful could be very productive to a corporation -or just a team- as a whole (e.g. because of know-how, soft skills, implicit corporate memory, informal knowledge transfer to younger staff, etc....). At last, for a given single person C during its corporate lifetime, its individual yearly productivity is only weakly correlated to its pay in the same corporation. In France, most persons reach their peak individual productivity around the age of 45, but many of them stays in the same corporation after that, and still have a small payroll increase.

• this is obvious, but often unstated: the goals of any corporation is not only, and cannot only be, short term profit. In other words, the capitalistic system is also an historical illusion or simplification. If capitalism was a faithful explanation of history, there won't have been any wars! Corporations are human organizations, and their goals are complex (one of their obviously unstated goals is to satisfy the egos of managers; read also about self psychology and metacognition)! Read also the famous Bullshit jobs book (very related to your question), and if you read French, La comédie (in)humaine.

To summarize and simplify caricaturally, our human species Homo Sapiens Sapiens is much more than, and certainly different of, the Homo economicus we pretend it is. This is basic economics. As a scientific field, neuroeconomics try to study that.

PS. History is tragic. That is a very well known fact, which is known since the ancient Greeks (Plato at least). As an European who will have to vote soon, the misunderstanding of that fact is the most important thing I am criticizing in the entire current European political class. Capitalism -as an economical system- is an illusion, even if it is a convenient one. The implicit ideology of the European Union is the end of history, and that is a very dangerous illusion: and as a grandfather I am explaining to my teen-ager grand-children that they might see a war in Europe in several decades.

Answer 15

Another important observation in the UK context: there is no compulsory retirement age, and it is illegal for an employer to insist upon somebody retiring by reason of their age (unless they have made provision for an Employer Justified Retirement Age, but such provision is an exception and must have a very strong legal defence). Consequently, the employer may not know if/when a given employee will retire. So, by "waiting for the employee to retire", the employer is taking a gamble on how long they will have to wait. If they are taking the gamble, that suggests that they think they will not be waiting for very long.

Answer 16

As history has proven, time and again (and again, and again, and again), any regime, that includes corporations as well, that is exceedingly ruthless performs very poorly. The reason for this is that humans are conscious and self-aware creatures capable of analyzing the past, approximating the future and empathizing with other conscious creatures.

The difference between mediocre corporate existence and brilliant history-changing corporate success relies on people having high morale and being able to identify with the entity they work for: it was true for the kings of old, it is true for CEOs as well.

It is a well-known fact that the greatest leaders, who made their people perform near-impossible feats that echo through the ages as a testament to the indomitable human spirit, cared deeply for their people and were respected rather than feared, and even if they were feared, they were also deeply loved by their people.

You keep the old-timers until the retirement age in recognition to their service to the company they performed through their lifetime. It makes you seem a just and fair ruler (a manager, a CEO) and prevents all your top talent at the peak of their professional performance (ages 40 to 50) to abandon you to seek employment with a more humane company.

Not only that: human beings are highly empathetic creatures and retaliation is a survival mechanism that we evolved to teach a lesson to those who would trespass against us. I have seen it more than once that a key personnel would quit at a moment designed to inflict the maximum damage, to teach a lesson to a particularly disliked manager (a hopefully get him/her fired). I have also seen people, who after finding a new job would actively seek to damage their previous employer (for example divert the sales to the new employer).

Remember: the more talented an employee, the easier it is for him or her to quit and find a new job.

Respect and loyalty is something that has to be deserved, you never just get it because you want to. One of the biggest failings of the modern education system on all levels is that it relies almost exclusively on individual work and achievement and on objective metrics. It teaches nothing about the fact that out there in the real life you are only as good as the people willing to follow you.