Voluntary retirement scheme

Voluntary Retirement Scheme

A Case Study (SAIL)Personnel Finance

MET-MFM (2012-2015)

MET’s Institute of Management 13/08/2014

Road Map

• What is VRS?• Why VRS?• VRS- The Golden handshake• Trade Unions & VRS• Advantages & Disadvantages• Technicalities• Case study on Sail• Failure and Success case study of VRS• Implementation• Conclusion

2VRS - Case Study (SAIL)

What is VRS?

• VRS is one of the strategies introduced in the early

1980s in central public sector undertakings (PSUs)

• The VRS is the most humane technique to provide

overall reduction in the existing strength of the

employees

• Its eligibility criteria varies from company to company

• VRS is a scheme whereby the employee is offered to

voluntarily retire from his services before his retirement

date 3VRS - Case Study (SAIL)

Why vrs?

• Due to recession in the business

• Due to intense competition, the establishment becomes unviable unless downsizing is resorted to

• Due to joint-ventures with foreign collaborations

• Due to takeovers and mergers

• Due to obsolescence of Product/Technology 4VRS - Case Study (SAIL)

VRS-The Golden Handshake

• The most human 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 reduce organization staff

• 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


VRS-The Golden Handshake (contd..)

• 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


Trade Unions & VRS

• Trade unions play a crucial role in introducing the VRS in any organized sector firm

• 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

• Companies such as Ind Auto, SKF Bearings, and Novartis have also been able to successfully reduce their workforce through the introduction of VRS


More on VRS

• Employers refer to VRS as 'Golden Handshake'

• Trade unions call it 'Voluntary Retrenchment

Scheme'

• For the government, it is ‘Unstated Exit Policy’

which means that an exit policy which may not

exist on paper8VRS - Case Study (SAIL)

Advantages on - Employees

• Lumpsum amount at a time

• The right to accept or reject any application

• The Income Tax benefit

• Pension and Gratuity


Advantages on - Employers

• Retirement benefits may give a recruiting advantage

• Achieving technological advancement

• Improves efficiency

• Responding to decline in sales and increase in cost


Disadvantages on - Employees

• Down grade in stacher both at home and outside

• It may cause depression in long run

• Employees might face insecurity because of fear of losing their job


Disadvantages on - Employers

• The efficient employees would leave the company while the inefficient may stay back

• Has high immediate costs, especially because these plans tend to be generous

• Demands that particular care be given to the selection process; generous plans can lead to a rapid exodus of the best workers


Technicalities

• The Voluntary Retirement Scheme is a legal way

• Must have worked for the organization for minimum of 10 years

• 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

• These employees won't be able to avail the benefit of Tax exemption

• Employees receiving VRS can get the tax exemption for the amount of Rs.5 Lacs 13VRS - Case Study (SAIL)

Technicalities (contd..)

• The Voluntary Retirement Scheme is given tax exemption as per the following limits:

• Least of following :

• Last drawn salary × 3 × completed yrs. Of services or Last drawn salary × remaining month of service which ever is higher

• Rs. 5,00,000

• Actual compensation received14VRS - Case Study (SAIL)

Case Study (SAIL)

SAIL – India’s Steel Giant

• SAIL was formed in 1973 as a holding company of the government

• World's 10th largest and India's largest steel manufacturer with a

33% share in the domestic market

• Located at Durgapur (WB), Bhilai (MP), Rourkela (Orissa) and Bokaro

(Bihar)

• The FY 1999-2000, the company generated revenues of Rs. 162.50

bn and incurred a net loss of Rs 17.2 bn.

• In February 2000, the SAIL management received a financial and

business-restructuring plan proposed by McKinsey & Co

• Major worry for SAIL's CEO Arvind Pande was the company's

160,000-strong workforce 15VRS - Case Study (SAIL)

Case Study (SAIL)

• Manpower costs alone accounted for 16.69%, compared with other

steel producers such as Essar Steel (1.47%) and Ispat Industries

(1.34%).

• McKinsey had advised Pande that SAIL needed to cut the 160,000-

strong labour force to 100,000 by the end of 2003, through a

voluntary retirement scheme

• SAIL launched a VRS in mid 1998, scheme provided an income that

was equal to 100 per cent of the prevailing basic pay and DA to the

eligible employees, 5,975 employees opted for the scheme

• On March 31, 1999, SAIL introduced a 'sabbatical leave' scheme

• On June 01, 1999, SAIL launched another VRS 16VRS - Case Study (SAIL)

Case Study (SAIL)

• Employees above 55 years of age would be given 105% of the

basic and DA every month.

• Employees who were between the age of 52 and 55 years would

receive 95%, below 52 years would get 85%

• By September 1999, over 4,000 employees opted

• In September 2000, SAIL announced yet another round of VRS, in

a bid to remove 10,000 employees by the end of March 2001

• On February 08, 2001, SAIL ended its four year recruitment freeze

• Announced its plans to fill up more than 250 posts


Some of the Success & Failure Stories of VRS

VRS - Case Study (SAIL) 18

Nokia India

• Introduced VRS for its Chennai plant

• 5000 employees opted for VRS out of 6700 employees

• VRS include 15 month salary & 1 lakh rupees as an compensation

• Bridge initiative program


SBI Bank Ltd.

• Why SBI went for VRS…??

• Huge NPA level

• Increased staff cost

• Increased competition from the (NPBs)

• technology as a change in banking dynamics


A Comparison between SBI & Some NPBs


SBI Bank Ltd. (contd..)

• Unplanned & unwise move by SBI

management…??

• The VRS was mainly aimed at reducing the

clerical staff and sub-staff, the maximum number

of optees turned out to be from the officer cadre

• And the reactive move..22VRS - Case Study (SAIL)

Effective Implementation

• Transparent and proactive communication of

managerial intent to reduce manpower

• Active exploration of other alternatives to

manpower reduction by managers

• Involvement of multiple stakeholders in VRS

implementation process


Effective Implementation (contd..)

• Providing counseling to employees about their

future

• Managing of funds received under the scheme

• Offering rehabilitation facilities to them

• Developing trust among employees regarding

fairness, honesty, and commitment of managers

towards organization and its employees


Conclusion

• This process should convince them that the posts in

the organization have become redundant and not the

person

• 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. 25VRS - Case Study (SAIL)

Presented by


Sr. No.

Name Roll No.

1 ANSHARI NAWED ABDUL VAHID 61

2 ATTRA GURUDEV RAVINDERSINGH 62

3 COUTINHO JOHN PETER 63

4 JAIN ASHISH GANPATHLAL 74

5 KHAN DANISH WAHID 80

6 RAO SWETA 105

Thank you & Regards

VRS - Case Study (SAIL) 27

Recruiting & HR

Voluntary retirement scheme