As baby boomers start heading for the door, how can employers prepare?
Although economic performance improvement in the United States is expected to lead to real growth in Canada’s GDP over the next two years, there’s a cooling trend on the way. The Conference Board of Canada’s long-term economic forecast, published in June of this year, warned that the baby boomer exodus from Canada’s workforce will restrain economic growth starting in 2016 and become “a dominant trend” that will continue until 2030.
The departure of the boomers has been hovering on the horizon for more than a decade now. And employers have been expecting any number of impacts, such as losing skilled workers and organizational knowledge and making room for the next generation of up-and-comers.
However, instead of rushing for the door, Canadian workers are increasingly deferring retirement: 79% of Canadian employees surveyed by the Canadian Payroll Association say they expect to delay retirement until age 60 or older—a preference that has increased from 70% over the past three years.
As the exodus unfolds differently than originally expected, the conversations about older workers are changing. It’s not so much the actual numbers that matter. Among the older workers, the high performers are leaving to take on different challenges, while those who are contributing less to the organization are not seeking the same opportunities and are instead staying on longer. This creates two different challenges for employers. One, they risk losing the “A-team” too early, along with critical skills, expertise and deep organizational knowledge. Two, they may need to “encourage” less-engaged older employees to retire.
When it comes to planning for the future workforce—ensuring that the right skills can be mobilized in the right roles— demographics are a key factor. Employers need to forecast their future staffing requirements and identify the gaps between supply (the talent pool from internal and external sources) and demand (the critical skills and roles anticipated by future business scenarios). Along with measuring hires, departures and promotions, employers need to consider employee demographics and predict, over several years, how the workforce as a whole will move up and across the organization, gaining more experience and skills over time.
Industries that rely on experienced, skilled and creative employees have increasingly built workforce planning into their business planning processes. So, too, have organizations looking to expand into new markets or achieve global reach; add new programs and services; or deal with a looming shortage of specific external talent.
Within an organization, planning can be best achieved by focusing on specific employee roles or workforce segments rather than on the entire organization. This is about investing in those roles that will be critical to achieving medium- to long-term business goals.
Canada’s energy companies are at the forefront of this strategy, because the talent stakes are so high and the pool of skilled talent is relatively small. The war for talent in Western Canada has driven up labour costs for everyone in the industry.
Employers need to consider the following in the wake of the baby boomer exodus: which roles are mission-critical, and how will they staff them with the right skills and experience?
Proximity to retirement age is not the primary factor in workforce planning. It’s not just about how many employees and when they will leave. However, age becomes a consideration once workforce priorities have been determined. For example, if an employee of retirement age holds a key role, the workforce strategy may require the incumbent to move into an advisory or coaching role, opening up a development opportunity for a less-seasoned employee.
Companies that manage this well won’t stop there. They will also open up different opportunities, challenges or lateral moves to employees they want to retain, retraining them as necessary in order to fill other expert roles, such as mentoring and coaching. Some organizations designate this as masters or emeritus status. In this way, the organization executes on its workforce plan while retaining the skills and experience of key individual contributors who have exhausted their upward mobility options but can transition elsewhere in the organization on the career lattice.
A Little Nudge
Given the reasons stated previously, organizations that want to move older employees toward retirement may be facing quite a challenge. Despite the enticements of early retirement, many older employees today say they do not have enough money to retire. Whether employees are saving too little or spending too much, this is only one aspect of the problem. Another issue is the investment industry: it’s moving the goalposts on how big the retirement nest egg needs to be. Some industry experts are now suggesting that workers need
to save $1 million or more to enjoy a “comfortable” retirement.
Mercer’s Inside Employees’ Minds study indicates that 29% of employees believe that they are personally not doing enough to financially prepare for retirement. Employees’ lack of financial readiness may be an unintended consequence of the disappearance of DB pension plans and the shift to DC arrangements and voluntary savings plans. Meaningful financial education, starting well before retirement age, could help to reduce the risk of employees who remain on the job because they are unsure of their finances. Some organizations have created prefunded retirement accounts consisting of annuities or RRSPs in order to build a “bridge to retirement” to assist senior employees who are transitioning out of the workforce.
Academics Mo Wang and Beryl Hesketh have conducted considerable research on understanding the components of well-being in retirement. Writing in 2012 on behalf of the Society for Industrial and Organizational Psychology, a division of the American Psychological Association, they identify predictive factors for achieving fiscal, physical and psychological well-being. Although many of the factors are individual attributes—good physical health, for example—the research clearly distinguishes workplace factors during the pre-retirement and transition period.
They cite financial literacy, a financial plan, and a supportive and smooth pre-retirement experience as key areas where the employer can exert a positive influence. In addition, they identify opportunities for bridge employment as an important factor.
Not long ago, retirement was a day-long event. You had a party, got your gift and went cold turkey into a life of golf. Today, employers are acknowledging that retirement is evolving into a 10- to 15-year phase that may cover a range of employment options. People are living longer and, in general, enjoying better health as they age. The baby boomer generation will spend the next 15 years or so moving through this transition and will expect and welcome flexible arrangements, lateral moves, transition plans and opportunities to pass on their knowledge.
Madeline Avedon is a principal in Mercer’s talent business.
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