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Voluntary Retirement Scheme | Meaning, Reasons, Benefits & Problems

Voluntary Retirement Scheme

What is Voluntary Retirement Scheme ?

Voluntary Retirement Scheme (VRS) can be defined as a method used to reduce the present workforce of the company. In this method, the employee is persuaded to voluntarily retire from the organisation. It is also called as "Golden Handshake". Generally, the employees who have attained the age of 40 are eligible for voluntary retirement.
However, the eligibility criterion for the voluntary retirement scheme is different in different organisations. Except the Directors of the company, this scheme is applicable to all the employees including workers and executives.

Reasons for Voluntary Retirement Scheme

Reasons for VRS are as follows :

1) For Organisation : 
Under the following circumstances, an organisation may choose for a voluntary retirement scheme :
  • Business recession,
  • High market competition, 
  • Technological changes, process of production, new product line, innovation,
  • Re-alignment of business,
  • Joint ventures with foreign collaborations, 
  • Mergers and acquisitions,
  • Business re-engineering process,
  • Product/technology obsolescence.

2) For Employees: 
The reasons for acceptance of VRS by employees are as follows :

i) Fear of Uncertain Future : 
A feeling of fear develops among the employees due to which they are compelled to adopt the VRS. Although voluntary retirement scheme is considered to be voluntary, but 62% cases of VRS are non-voluntary. Either individually or cumulatively these fears affect the employees, thereby forcing them to take VRS.

ii) Need for Money : 
Some people adopt for VRS when they are in need of money in order to fulfill their requirements. Money can be required for the repayment of loan, marriage of daughter, purchase of a house, etc. 

iii) Job Dissatisfaction : 
If the employee is not satisfied with the job, he/she may go for VRS. This job dissatisfaction may be due to clashes with the supervisor or the peer group or because the job assigned to the employee is not according to his skills due to which he does not find it interesting.

iv) Sickness or Old Age : 
As the employees become older, their physical efficiency decreases and therefore their productivity also decline. So, old age can be a reason for VRS. Sickness is another reason why employees go for Voluntary Retirement Scheme because a sick employee is unable to do the work as he suffers from fatigue, weakness and sooner gets tired after every activity.

v) Allurement by Management : 
When the management of a company offers its employee a lump-sum amount in lieu of VRS, the employee accepts Voluntary Retirement Scheme. This handsome amount offered to the employee is known as "golden handshake".

vi) Dream of Own Business : 
Some workers do not find it pleasurable to work under others and so they wish to settle their own business. Because of this desire the workers go for VRS.

vii) Other Issues : 
Some other reasons for VRS are : 

a) Attachment to Hometown : 
Some employees are too much attached to the place where they are born and bought up. So, in order to settle back to their homeland the employees go for voluntary retirement scheme.

b) Family Pressure : 
Some workers, especially the female workers due to pressures of the family, are forced to adopt VRS. 

c) Better Job Offer : 
If the workers get another good job opportunity from any other company, then they opt for VRS.

Benefits of Voluntary Retirement Scheme

Benefits of VRS include : 
  1. In case of retrenchment, there are legal formalities which need to be fulfilled before the employee is retrenched. However, in VRS there are no such legal hindrances and VRS can be put in use very easily. 
  2. In lieu of voluntary retirement scheme, the financial benefits provided to the employee are very much attractive as compared to that of retrenchment.
  3. As VRS is voluntary, there is no need of any kind of pressure from the management. This prevents the conflicts between employer and employee.
  4. If there is a surplus of labour in any department or division, then by implementing voluntary retirement scheme the number of labours can be reduced. 
  5. Since in VRS the number of employees declines, so the cost of those employees gets saved, thereby the overall cost for an organisation also decreases.
  6. In comparison to retrenchment where the employees are forcefully retrenched from an organisation. VRS is the most sophisticated, better and most humane method to reduce the number of employees.
  7. VRS offers profitability to the employees who are adopting voluntary retirement scheme. Therefore, VRS prevents bitterness and dissatisfaction.

Problems of Voluntary Retirement Scheme

VRS do have some problems as well. These are as follows :
  1. Management might lose talented employees due to voluntary retirement scheme because many skilled, competent and productive employees may also apply for VRS in order to get separated from the company.
  2. If in a company a number of employees apply for VRS then a feeling of fear and uncertainty develops among the existing employees regarding their job security. 
  3. The employee's separation from the organisation due to VRS may cost much more as compared to the gains achieved from productivity.
  4. Although VRS is a better method of separation of employees, still there might be protest by the trade unions and other members of organisation against this scheme which can hamper the working of the industry.
  5. The name and fame of the organisation may also get affected due to the VRS operations.

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