Introduction
Globally, workforce management is becoming a challenge with time owing to the increasing burden of pension systems. Different countries across the world have devised diverse pension systems, which are unique to their needs.
For example, in Europe, the pension system has become an economic liability because people retire at an early age of 55 or 65 when they are still productive. Moreover, the aging population of Europe has led to a decline in gross domestic product.
Vance and Paik describe the pension system of Europe as a burden because it is economically unsustainable (352).
Factors that make the pension system burdensome to the government include the declining value of pension schemes in stock markets owing to intermittent financial crises, loss of workforce through aging population and early retirement, and increased spending on pension systems.
Therefore, this essay explains how companies can adjust the mix of retirement benefits, recommends possible incentives that could reverse the trend of a burdening compensation system, and eventually examines implications for human resource planning.
Adjustment of Compensation Packages
To fit the current needs of compensation packages in Western Europe, companies should adjust benefits according to the amount of earnings, the number of credits earned, and the age of retirement.
The benefits should be commensurate with one’s earnings to prevent retirees from earning more than what they contributed to the social security, as in the case of the compensation benefits in the United States.
The adjustment of benefits according to earnings is appropriate because it would relieve Western Europe of the pension system burden, which is increasing with time.
According to Social Security Administration, employees should earn at least 40 credits, which is equivalent to at least 10 years of work to become eligible for retirement benefits (4).
The adjustment of benefits according to the credits earned or the number of years worked fits the compensation needs of Western Europe because employees are yearning to reach retirement age in spite of their retirement savings.
The most crucial adjustment of benefits is increasing the age of retirement and changing benefits system. In the United States, the early eligibility age for retirement is 62, wherein employees can claim retirement benefits early at the age of 62 or delay until full retirement age of 67 (Knoll and Olsen 22).
The amount of retirement benefits claimed progressively increases from the early eligibility age of 62 to full retirement age of 67.
Hence, increasing the retirement age in Western Europe and distributing the retirement benefits according to the time of a claim would significantly discourage the culture of early retirement among Europeans.
Compensation Package Incentives
The possible compensation package incentives, which would reverse the trend of early retirement, change the cultural expectation that is in Western Europe, and promote retention of employees, are the provision of monthly bonus, allowance of flexible working schedules, provision of long-term care insurance, and increment of retirement benefits.
In addition to earnings, potential retirees require monthly bonus as incentives for the period that they work after reaching their eligible retirement age. Given that potential retirees are productive, the provision of flexible working schedules as benefits would encourage them to continue working despite reaching their retirement age.
Additional benefits such as long-term care insurance would entice employees not to retire early lest they lose the benefits. The increment of retirement benefits according to retirement age is an effective compensation package incentive.
Knoll and Olsen argue that the increment of retirement benefits delays claiming and discourages early retirement (21). In this case, employees in Europe would change their cultural expectation of retiring at the age of 60 because they will earn minimal retirement benefits.
Implications for Human Resource Planning
The loss of experienced employees at the age of 60 when they are still productive is a great loss to organizations, companies, and governments. Given that it is expensive to recruit, train, and retain employees, early retirement of employees causes a great loss of human resources.
To avert the loss of human resources through early retirement, long-term human resource planning is essential. In essence, the human resource management should recruit, train, and retain the young employees, but not the old employees, because they have many years to make immense contributions before they reach their retirement age.
Moreover, early retirement can discourage employees from working in Europe and cause brain drain. Employees can migrate to countries with a higher retirement age and better employment benefits than European countries.
Conclusion
The increasing burden of the pension system in Europe is becoming an economic liability because it is unsustainable. Reforms are necessary to adjust compensation benefits to be in line with those of the United States.
Adjustment of the compensation benefits to reflect the amount of earnings, the number of credits earned, and the age of retirement fits the needs of Western Europe.
To discourage early retirement, change cultural expectations, and improve the retention of employees, the provision of monthly bonus, flexible working schedules, long-term care insurance, and better retirement benefits are the possible incentives.
Overall, the implication of this case for long-term human resource planning is that it promotes recruitment, training, and retention of young employees and prevents brain drain in Europe.
Works Cited
Knoll, Melissa, and Anya Olsen. “Incentivizing delayed claiming of social security benefit before reaching the full retirement age.” Social Security Bulletin 74.4 (2014): 21-43. Print.
Social Security Administration. Retirement benefits. 2015. Web.
Vance, Charles, and Yongsun Paik. Managing a Global Workforce: Challenges and Opportunities in International Human Resource Management. New York: Routledge, 2014. Print.