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Compensation Issues for Returning Seniors

Monday, August 1, 2005
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We're in the process of hiring several senior-age employees, some of whom have retired from our company, some of whom lost their jobs before becoming eligible for retirement benefits. We're struggling to come up with compensation and benefit plans appropriate for this age group and their varying personal situations. Can you give us some ideas?

Douglas M. (Max) Reid: You're facing a hiring experience that HR directors increasingly will be dealing with. The demographic trend line is clear. The U.S. Census Bureau states that between 1998 and 2000, the number of workers between 65 and 74 increased by one-seventh, to just under 4 million. In 2002, the workforce increased by 720,000, with workers 55 and older accounting for virtually all of that increase. By the end of this decade, 20 percent of the U.S. workforce will consist of workers 55 and older. And job growth is expected to outstrip the availability of qualified workers.

There are a number of upsides to meeting your staffing needs with older workers. They usually are reliable and have a strong work ethic. They bring maturity and useful experience to their assignments. They usually want to work and, increasingly, many have to do so. They generally are flexible about hours of employment and the type of compensation they receive.

There is a downside, though. Older workers tend to use the health system more often than younger employees, which can be expensive for you if you hire older workers as employees, rather than as independent contractors. With steeply rising health costs posing such a challenge to corporations, introducing older employees to your organization might aggravate an already challenging situation with constantly increasing health-care costs.

I would recommend that you be prepared to customize compensation and benefits to some degree, basing your offers to these potential hires on their needs and the resources they already have, balanced against what you can realistically afford to offer. In your potential hiring pool may be affluent retirees who want to remain active, as well as individuals who have lost their jobs and see their resources rapidly dwindling, and everyone in between. A one-size-fits-all package is not going to work for all of them.

Some job candidates may offer to take a modest salary reduction in exchange for your providing medical benefits. You can always agree to offer health coverage in exchange for the new hire's accepting an adjustment in the starting salary, if the coverage is what is really important to that individual.

You also might decline to provide coverage, and instead offer these persons a payment for every six months they are with your organization, which they can put toward health-care premiums and expenses. They can shop for their own policies with the help of the health-care subsidy you provide them.

Another option is to offer a high-deductible health plan in conjunction with a health-savings account. These accounts may be attractive to this demographic because they allow the participant to channel pre-tax dollars into the account to pay the first few thousand dollars of annual health-care expenses, depending on the plan design. Once the high deductible is met, the plan pays benefits like a traditional health plan. Essentially, this puts the financial responsibility for routine medical intervention and wellness care on the employee; and the health plan kicks in to cover more serious health issues or emergencies. Unused funds continue to accrue interest, tax-free. This is a newer model of health-care cost-sharing between employees and employers that is just beginning to become institutionalized, and it would be suitable for a number of older workers who are continuing in the work force but aren't yet eligible for Medicare.

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Many of these individuals may be seeking positions as independent contractors rather than permanent employees, in order to preserve their personal freedom, for example, to work eight months of the year rather than all year round, or to work less than full-time. Obviously, this gives you the flexibility to arrange per-diem or hourly compensation as opposed to straight salary, and reduces or eliminates your obligation to offer benefits comparable to those received by your full-time employees.

A great deal has changed in the last quarter century. The long-standing psychological contract between employer and employee was broken in the massive corporate restructuring of the 1980s, which continued to erode into the '90s. Employees now move between jobs much more often than in the past, and they are more prepared and willing to negotiate for realistic compensation and benefits. The older worker is probably more realistic because of his or her experience.

The good news is that age discrimination is ebbing. It is becoming rare to discuss age in considering an applicant for employment. Fifteen years ago, if a candidate was over 50, a lot of people would say, "Forget it." Today, the focus is on what they bring to the party. If they're 35, that's fine. If they're 62, that's fine, too. Their performance and progression will correlate with how well they contribute.

Max Reid is a principal of the Cabot Advisory Group (www.cabotgrp.com), and was formerly senior vice president of HR at Colgate-Palmolive and Xerox. Reid is on a leave of absence from Cabot and is currently an "older" employee working full time as senior vice president of HR for PanAmSat.

If you have a question to ask the HR experts at Cabot, e-mail it to ccornell@lrp.com.

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