Scant Planning for Mid-Manager Retirements

A new study by Ernst & Young reveals that while employers are increasingly aware of the developing talent shortage that will be caused by retiring baby boomers, few companies are taking meaningful steps to deal with it at the critical middle management level.

The report, the 2007 Aging U.S. Workforce Survey: Challenges and Responses-An Ongoing Review, found that while 41 percent of companies think the middle management level will be hit hardest by a retirement-related talent drain, 75 percent of them are doing succession planning for senior management positions only.

“The impending crisis is really at the middle management layer,” says Bill Leisy, a principal in Ernst & Young’s performance and reward practice. “Companies are going to need programs to develop employees for these roles. And the time to start those programs is now, since it’s going to take time to get them in place and time to develop the talent.”

The U.S. Bureau of Labor Statistics has projected that 25 percent of the nation’s workforce will be eligible to retire within the next five years, and that over the next decade, the number jumps to 43 percent.

Leisy says that to their credit, companies are more aware of the potential problems caused by baby-boom retirements than they were in a similar Ernst & Young study in 2006. Back then, for example, 38 percent of companies viewed retention of critical employees as a top priority. This year, the number has jumped to 68 percent.

Even so, companies have not gotten around to doing much about their concerns, the study shows. For example, while 44 percent of companies say it would be desirable to have senior management stay beyond the normal retirement age, 60 percent say their current retirement programs don’t encourage them to do so.

Less than one in 10 companies have established phased retirement programs, in which employees begin to receive some of their retirement benefits even though they remain at work, although 29 percent of companies are considering it. In addition, while 39 percent of companies recognize that health care is the main driver in employees’ decisions to retire, 54 percent of them are considering increasing employee co-payments, which could accelerate the exodus of talent by encouraging employees to retire and make Medicare their primary health plan.

Leisy says that baby-boomer retirement “clearly is not just an HR issue. It’s a key long-term issue that impacts all aspects of the business-corporate strategy, operations, compliance and financial. The accountability for it doesn’t stop at the HR director; it goes all the way up into the C suite.”

The study prescribes a number of steps that companies can take to deal with baby-boomer retirement and the resulting talent shortfall. Leisy urges companies to begin with an in-depth demographic assessment of their workforces, followed by internal surveys to determine employees’ needs and interests. Only then can they effectively develop and implement programs to deal with the problem, he says.

Measures that can help reduce the talent crunch include phased retirement programs and flexible work arrangements, in which employees can gradually reduce their hours and responsibilities instead of leaving, Leisy says.

—Patrick J. Kiger