Voluntary Retirement Scheme (VRS)

In the present globalised scenario, right sizing of the manpower employed in an organisation has
become an important management strategy in order to meet the increased competition. The
voluntary retirement scheme(VRS) is the most humane technique to provide overall reduction in
the existing strength of the employees. It is a technique used by companies for trimming the
workforce employed in the industrial unit. It is now a commonly method used to dispense off the
excess manpower and thus improve the performance of the organisation. It is a generous,tax-free
severance payment to persuade the employees to voluntarily retire from the company. It is also
known as 'Golden Handshake' as it is the golden route to retrenchment.

In India, the Industrial Disputes Act,1947 puts restrictions on employers in the matter of reducing

excess staff by retrenchment, by closures of establishment and the retrenchment process involved
lot of legalities and complex procedures. Also, any plans of retrenchment and reduction of staff
and workforce are subjected to strong opposition by trade unions. Hence, VRS was introduced as
an alternative legal solution to solve this problem. It allowed employers including those in the
government undertakings, to offer voluntary retirement schemes to off-load the surplus
manpower and no pressure is put on any employee to exit. The voluntary retirement schemes
were also not subjected to not vehement opposition by the Unions, because the very nature of its
being voluntary and not using any compulsion. It was introduced in both the public and private
sectors. Public sector undertakings, however, have to obtain prior approval of the government
before offering and implementing the VRS.

A business firm may opt for a voluntary retirement scheme under the following
circumstances:-

 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 obsolescences of Product/Technology.

Though the eligibility criteria for VRS varies from company to company, but usually, employees
who have attained 40 years of age or completed 10 years of service are eligible for voluntary
retirement.The scheme applies to all employees including workers and executives, except the
directors of a company. The employee who opts for voluntary retirement is entitled to get forty
five days emoluments for each completed year of service or monthly emoluments at the time of
retirement multiplied by the remaining months of service before the normal date of
service,whichever is less. Along with these benefits, the employees also get their provident fund
and gratuity dues. Compensation received at the time of voluntary retirement is exempt from tax
under section 10 (10C) of the Income Tax Act, 1961 upto the prescribed amount upon fulfilling
certain stipulated conditions. However,the retiring employee should not be employed in another
company or concern belonging to the same management.

The companies can frame different schemes of voluntary retirement for different classes of their
employees. However, these schemes have to conform to the guidelines prescribed inrule 2BA of
the Income-tax Rules. The guidelines for the purposes of section 10( 10C ) of the Income-tax Act
have been laid down in the rule 2BA of the Income-tax Rules. The guidelines provide that the
scheme of voluntary retirement framed by a company should be in accordance with the following
requirements, namely :

 It applies to an employee of the company who has completed ten years of service or
completed 40 years of age

 It applies to all employees (by whatever name called), including workers and executives
of the company excepting Directors of the company

 The scheme of voluntary retirement has been drawn to result in overall reduction in the
existing strength of the employees of the company

 The vacancy caused by voluntary retirement is not to be filled up, nor the retiring
employee is to be employed in another company or concern belonging to the same
management

 The amount receivable on account of voluntary retirement of the employees, does not
exceed the amount equivalent to one and one-half months salary for each completed year
of service or monthly emoluments at the time of retirement multiplied by the balance
 months of service left before the date of his retirement on superannuation. In any case,
the amount should not exceed rupees five lakhs in case of each employee, and

 The employee has not availed in the past the benefit of any other voluntary retirement
scheme.

Some companies offers very attractive package of benefits to the employees who opt for VRS.
For example, the VRS scheme may also include providing counselling to employees about their
future;managing of funds received under the scheme; offering rehabilitation facilities to
them,etc.

A company may make the following announcements while implementing a voluntary

retirement scheme:-

 The reasons behind downsizing the organisation.

 The eligibility criteria for voluntary retirement scheme.

 The age limit and the minimum service period of employees who can apply for the
scheme.

 The benefits that are offered to the employees who offer to retire voluntarily.

 The rights of the employer to accept or reject any application for voluntary retirement.

 The date up to which the scheme is open.

 The income tax benefits and income tax incidence related to the scheme.

 It should also indicate that the employees who opt for voluntary retirement and accept the
benefits under such scheme shall not be eligible in future for employment in the
 organisation.

Voluntary Retirement Schemes have been legally found to be giving no problem to employers,
employees and their unions. But, the retrenchment plans of an organization must be compatible
to its strategic plans. Its procedure and reasons for introduction must be discussed with all
management staff including top management. One need to identify departments or employees to
whom VRS is applicable and thereby formulate its terms and conditions and also state the
benefits that would be available to those who took VRS. Such information should be made
available to every employee of the organization, mentioning the period during which the scheme
will be open. Also,existing employees might face insecurity because of fear of losing their job
too. One of the possible drawback of the VRS is that the efficient employees would leave the
company while the inefficient may stay back. Thus it is the /responsibility of the employer to
motivate them and remove their apprehensions and fears
vrs-scheme.doc

-1-

Voluntary Retirement Scheme (VRS) for the employees of Public

Sector Undertakings.

1. SHORT TITLE:

(i) This scheme may be called the Punjab State Public Sector Undertakings

Voluntary Retirement Scheme (VRS) 2002.

(ii) This scheme shall apply to all the Public Sector Undertakings (PSUs)

including all Cooperative Institutions of the State of Punjab. This will

apply to the Subsidiaries of the PSUs defined as entities in which PSUs

and/or Govt. hold more than 50% equity.

(iii) This scheme shall come into force from the date of its notification.

2. OBJECTIVE:

(i) To achieve optimum human resource utilization.

(ii) To optimize return on investment in PSU.

(iii) In implementing the VRS scheme, managements shall ensure that it is

extended primarily to such employees whose services can be dispensed

with without detriment to the company. Care shall be exercised to

ensure that highly skilled and qualified workers and staff are not given

the option. As there shall be no recruitment against vacancies arising

due to VRS, it is important that the organisation is not denuded of

talent. The managements of the PSUs shall introduce the VRS with the

approval of their Boards and the administrative departments. Under no

circumstances shall grant of VRS be construed as a right.

3. DEFINITIONS: In this scheme, unless the context otherwise requires,

(a) “Public Sector Undertaking (PSU)” means an entity that is :

(i) Created under a Statute of the State Legislature; or

(ii) Created under a statute of Parliament, in which case the

management & control vests in Govt. of Punjab or

(iii) Created under the Companies Act 1956 in which the Govt. of

Punjab, holds equity share more than 50% of those issued or

A Cooperative Society as defined under the “Punjab Cooperative

Societies Act, 1961, as amended from time to time including Apex

Cooperative Institutions.

(b) “Scheme” means Punjab State Public Sector Undertakings

Voluntary Retirement Scheme (VRS) 2002.

(c) “Employee” means a person employed on permanent/regular basis

working against regular sanctioned graded post.vrs-scheme.doc

-2-

(d) “Service” means a period of permanent or regular employment

against graded post as defined in the Service Bye Laws/ Regulations

of the PSU.

(e) “Year” means a financial year commencing on 1

st

April and ending

on the subsequent 31

st

March

(f) “Salary” means Basic Pay plus appropriate %age of DA as on the

date of applying.

(g) “Family” means as defined under rule 2.17 of the Punjab Civil

Services Rules, Vol. I

(h) “Request for V.R.” means application submitted for VR, as per

specimen proforma annexed as Annexure-A.

(i) “Competent Authority” means the Chief Executive

Officer/Managing Director of the Public Sector Undertaking

concerned.

4. OPERATION OF THE SCHEME:

The Scheme shall remain in operation for 6 (six) months from the date of

issuance of notification to this effect. The Govt may extend it from time to

time.

(i) Within the period of operation:

(a) In the case of a PSU which does not require budgetary or any

other external support to implement the scheme, it shall come

into operation upon the approval by the Administrative

Department of a resolution of the Board of Directors that the

scheme be brought into effect with specified eligibility criteria

(b) In the case of a PSU, which requires budgetary or any other

external support to implement the scheme, it shall come into

operation only after the Department of Finance approves a

proposal of the Administrative Department based on a resolution

of the Board of Directors as in (a) above to this effect.vrs-scheme.doc

-3-

5. ELIGIBILITY:
All persons employed on permanent/regular basis working against regular

sanctioned graded post of Public Sector Undertakings will be eligible to seek

Voluntary Retirement provided they have completed a minimum of 5 years of

service and have at least 5 years of service remaining before their

superannuation.

However, the employees falling in the following categories as

determined by the concerned PSU are not eligible to seek Voluntary

Retirement under the scheme:

(a) Specialist employees who have executed service bonds and have not

completed the period prescribed therein;

(b) Employees serving abroad under special arrangement/bonds;

(d) Employees appointed on contract basis;

(e) Any other category of employees as may be specifically debarred by

the Public Sector Undertaking from seeking retirement under this

scheme.

Note:

In case disciplinary action is pending against an employee, who has

sought Voluntary Retirement, the Disciplinary Authority shall, after

considering all facts, convey to the Competent Authority whether the

request of the employee should be accepted or not. In case the

Disciplinary Authority decides that the request of such an employee for

Voluntary Retirement be not accepted, the same shall be

communicated to the employee in writing and he shall have a right to

make an appeal as provided under section 9 (v).

6. AMOUNT OF EX-GRATIA:
An employee seeking Voluntary Retirement under the scheme will be entitled

to the compensation consisting of salary of 35 days for every completed year

of service and 25 days for every year of the balance of service left until

superannuation. The compensation will be subject to a minimum ofvrs-scheme.doc

-4-

Rs.25,000/- or 250 days salary whichever is higher. However, this

compensation shall not exceed 80% of the sum of the salary that the

employee would draw at the prevailing level for the balance of the period left

before superannuation.

In case an employee is governed by a retiring/superannuation pension

scheme the disbursement of pension shall commence from the month next to

the date an employee would have retired in the ordinary course.

7. MODE OF PAYMENT:

100% of the amount of ex-gratia payable to an employee on opting for

Voluntary Retirement under this Scheme would be paid in cash within 60 days

from the date of his relieving.

8. OTHER BENEFITS:

An employee whose offer for Voluntary Retirement under the Scheme is

accepted will be eligible, apart from the ex-gratia defined above, to any

benefit that would have been available to him upon superannuation as per the

policy extant in the PSU prior to the date of notification of this scheme. It is

clarified, however, that an employee shall not be eligible for both

retrenchment compensation and ex-gratia under this scheme but shall have to

opt for one of the two

9. PROCEDURE:
(i) An eligible employee may submit request opting for Voluntary

Retirement under the scheme to the Competent Authority through

proper channel in a prescribed proforma (Annexure-A), which shall be

available in the PSU.vrs-scheme.doc

-5-

(ii) The Competent Authority may after considering the application and

after giving an opportunity to the applicant of being heard, pass a

speaking order within a period of 3 months, either accepting or

rejecting the request.

(iii) In case the Competent Authority fails to pass an order rejecting the

request by the due date as given at sub para (ii) above, the request

would be deemed to have been accepted and the employee would be

retired.

(iv) A copy of every order made under paragraph (iii) above shall be given

to the employee.

( v ) An employee who is aggrieved by an order of rejection may within

thirty days from issuance of such orders file an appeal before the

Administrative Secretary of the Department under which the concerned

PSU falls, whose decision shall be final and binding.

(vi) The date of acceptance of VRS by the competent authority will be

treated as date of voluntary retirement.

10. GENERAL CONDITIONS:

(i) Arrears of wages due to general revision of pay scales etc. shall not be

included in computing the eligible amount.

(ii) Only completed years of service shall be reckoned for arriving at the
minimum eligible service.

(iii) Fraction of service of 6 months and above shall be reckoned as one

year for the purpose of calculating the ex-gratia. Fraction of service

less than 6 months will be ignored for the purpose of calculating the

ex-gratia.

(iv) The salary shall be calculated on the basis of last salary drawn by an

employee/officer.

( v ) No employee shall be allowed to withdraw the request made for

voluntary retirement under the scheme after it has been accepted by

the Competent Authority.

(vi) The Competent Authority shall have absolute discretion either to

accept or reject the request of an employee seeking Voluntary

Retirement under the scheme. The reasons for rejecting the request of

any employee seeking Voluntary Retirement shall be recorded in

writing by the Competent Authority. vrs-scheme.doc

-6-

(vii) All payments under the scheme and any other benefit payable to an

employee shall be subject to the prior settlement/re-payment in full of

loans, advances, returning of Govt.’s property and any other

outstanding due against him and payable by him to the PSU concerned.

(viii) All payments made under the scheme shall be subject to deduction of

tax at source as per Income Tax Act 1961 wherever applicable.

(ix) An employee who seeks voluntary retirement under this scheme shall

not be eligible for re-employment in Govt., any PSU or any of its

subsidiaries. A complete data/record, on website of all those

employees of the Public Sector Undertakings/Corporations, who have

availed the VRS shall be retained. While making future recruitments no

person out of these shall be retaken in service.

(x) In the event of the death of an employee, whose request for voluntary

retirement under the scheme has been accepted, the compensation,

which would have become due and payable to the deceased employee,

shall be paid to the person nominated to receive such dues.

(xi) The benefits payable under this scheme shall be in full and final

settlement of all claims of whatsoever nature, whether arising under

the scheme or otherwise to the employee (or his nominee in case of

death). An employee who voluntarily retires under this scheme will not

have any claim against the PSU concerned of whatsoever nature and no

demand or dispute or difference will be raised by him or on his behalf,

whether for re-employment or compensation or back wages including

employment of any of his relative on compassionate grounds in the

service of the PSU or for any other benefits whatsoever.

(xii) The vacancy caused by Voluntary Retirement shall stand abolished.

(xiii) The Govt. reserves the right to withdraw this scheme at any time it

thinks fit and its decision in this respect will be final.

11. ENABLING RULES:

(i) The Public Sector Undertakings must consider the Voluntary Retirement

Scheme (VRS) and pass an order adopting it.

(ii) The scheme shall come into effect only after requisite approval as laid

down in Para 4 is received. However, the PSU may circulate this

scheme & obtain response of the employees, in order to determine the

financial and other implications.vrs-scheme.doc

-7-

(iii) No PSU/Administrative Department may make any change to the

scheme without seeking comments of the Finance Department and

obtaining prior approval of the Council of Ministers to the proposed

changes.

12. Budgetary Support:

(i) Budgetary support will be provided to the loss making enterprises or

those making marginal profit and to the sick enterprises for

implementing VRS only in case bank credit is not available. However,

before seeking budgetary support in cases of unviable/sick PSUs other

sources of funding should be fully explored such as asset securitisation

and bank loan against government guarantee for funding VRS.

(ii) State Renewal Fund in its present form will cease to exist.vrs-scheme.doc

-8-

ANNEXURE –A

APPLICATION TO SEEK VOLUNTARY RETIREMENT

The Managing Director/Chief Executive Officer,

……..Name of the PSU……

(Through Proper Channel)

Subject: VOLUNTARY RETIREMENT.

Sir/Madam,

I hereby opt to seek Voluntary Retirement from the services of the

……………………………….. (Name of the PSU) in accordance with the terms and

conditions stipulated in the Punjab State Public Sector Undertaking Voluntary

Retirement Scheme (VRS) 2002, circulated vide No. ………………………………………………

dated ……………….., which I have carefully read and have understood the contents of

the same.

2. I accept the terms and conditions stipulated in Punjab State Public

Sector Undertaking Voluntary Retirement Scheme (VRS) 2002, unconditionally and

irrevocably.

3. I furnish the required particulars in the APPENDIX enclosed for

consideration of my offer to seek Voluntary Retirement from the services of the

………………………………( PSU) under the above scheme w.e.f. …………………….

Thanking you,

Yours faithfully,

Signature of the Employee

Place:……………….. Designation:………………….

Name:………………………….

Dated: ……………… vrs-scheme.doc

-9-

APPENDIX

TO BE FILLED IN BY THE EMPLOYEE

PART-I

S. No. Particulars

1. Name of the Employee/ Officer :

2. Employee PF No. :

3. Designation :

4. Date of Birth :

5. Age as on (Last date of the Scheme) :

6. Date of Joining the PSU (Excluding

the temporary period, if any)

7. No. of completed years of service as

on (last date of the scheme)

8. Date of attaining the age of

Superannuation

9. Salary as on (last date of the scheme)

- Basic Pay

- D.A.

Total:

10. Has the employee executed any

bond? Give details thereof.

11. Has the employee undergone any

specialised intensive training within

the organisation or outside? If so,

give details thereof

12. Has the employee taken loans from

the organisation? If yes, give details

thereof head-wise, such as

HBA/Vehicle Loan or any other. Give

details of amount of loan sanctioned

and the outstanding balance as on

(last date of the scheme)

:vrs-scheme.doc

-10-

13. Whether the employee has been

imposed any Major or Minor

Punishment during the preceding 5

years. If yes, give details

14. Whether any disciplinary action is

pending?

PART-II

15. I hereby certify:

(a) That the information given above is complete and true.

(b) That I hereby opt to seek Voluntary Retirement from the services of the

………………………………. (Name of the PSU) in accordance with the terms

and conditions stipulated in the Punjab State Public Sector

Undertakings Voluntary Retirement Scheme (VRS) 2002, which I accept

unconditionally and irrevocably as circulated vide No. …………………………,

dated …………….

(c) That I hereby authorise the …………………….(Name of the PSU) to recover

and adjust all loans/dues etc. payable by me whatever kind or nature.

(d) That I agree that in case any of the aforesaid statements is found to be

untrue, the payment made to me by the …………………….. (Name of the

PSU), under this Scheme, will be recoverable from me without

prejudice to any other action that may be taken against me by the

…………………….. (Name of the PSU).

Dated:

Place: Signature of the Officer/Official

Voluntary Retirement Scheme
MAINSTREAM economists perceive voluntary retirement as a measure

to shed the workforce whose marginal productivity is zero. Further, it

is argued that this could be introduced in an industrial organization for

maintaining its cost effectiveness in an increasingly competitive world.

Moreover, voluntary retirement is accompanied by technological

modernization that warrants the replacement of labor with capital.

Technological modernization improves the productivity of existing

workforce so much so that a section of the existing workforce becomes

again redundant even as modernization enhances the installed

capacity of the technology. The workforce that becomes redundant in

this process has to retire or be retrenched.

The rationale behind the introduction of voluntary retirement scheme

(VRS) in India is that any organized industrial organization has to

operate within the existing legislative framework, which does not allow

the organization to shed the redundant workforce without adequate

compensation

Employers refer to VRS as 'golden handshake', trade unions call it

'voluntary retrenchment scheme', and for the government, it is

'unstated exit policy' which means that an exit policy which may not

exist on paper. VRS is one of the strategies introduced in the early

1980s in central public sector undertakings (PSUs) to reduce the socalled surplus or redundant
workforce. It gained publicity after the

introduction of new economic policy in 1991. In India, the government

employs more than 70 per cent of the organized workforce; it uses all

its channels to reduce the organized sector of the workforce without

antagonizing the trade unions. It is envisaged in the new economic

policy that VRS can provide minimum sustenance security to the

retired individual and his family.

Trade unions play a crucial role in introducing the VRS in any

organized sector firm. The scheme cannot be implemented without, at

least, the tacit approval of the representative union. Sometimes

without the consent of the trade unions, workers legalize the VRS by

accepting it en masse. Very recently, the entire workforce of Sri Ram

Mills (1,400 workers) has accepted VRS while the major union opposed

the scheme tooth and nail. Other companies such as Ind Auto, SKF

Bearings, Novartis, Biddle Sawyer, and Siemens have also been able

to successfully reduce their workforce through the introduction of VRS.

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. When workers find
the company's performance good,

they refuse to accept the scheme. In such situations, trade unions

through various strategies (for instance, by exposing the status of

those workers who have accepted VRS) persuade workers not to

accept the scheme. A study by Shri Ram Center for Industrial

Relations and Human Resources in 14 industrial centers of various

states revealed that workers opted for VRS due to apprehension of

closure of firms or personal reasons such as poor health, clearance of

debt, marriage, education of children, etc. Another study observed

that complaints were recorded by some of the VRS workers who came
for retraining under NRF that invisible discrimination affected their

prospects for promotion in the organization where they were working.

Thus, the atmosphere of discrimination and apathy towards the

socially disadvantaged groups is also forcing most of the workers

belonging to these groups to opt for VRS.

The main objective behind the scheme is to send out those who cannot

be retrained in new skills. The premise of the argument appears to be

weak. The liberalization policy, in its anxiety to modernize, restructure

and globalize the products of Indian industry, is wasting precious labor

force that could have been modernized through retraining and on-thejob training. Precious skills and
abilities of the retrenched workforce

are equated with worn out physical capital that may not be susceptible

to repair or modernization. Are human beings not capable of learning

and modifying their knowledge, skills and applying the same to

produce higher output? The current emphasis on restructuring does

not allow such questions.

The free economy and trade liberalization have ushered in the need for

the enterprises to have a competitive edge. Economic forces have led

to organizational cost cutting, changes in production processes,

exploration of new markets, plant relocations, modernizations,

downsizing and structural changes.

Organizational adjustment at all levels has become extremely

imperative. Over manning has crept into almost all industrial units on

account of the inability of the enterprises to reduce or adjust workforce

as per the business needs. The sort of cuts that only happened in

heavy industries has now become widespread. The days of nibbling

away deadwood have long gone. It's time for the organizations to

realign and focus on the core competencies.

The Golden HandshakeThe Voluntary Retirement Scheme (VRS) is the latest mantra of many

a corporate and Public sector units. The company may decide to

declare a VRS based on their HR plan and suitability. For a common

salaried individual this becomes a major decision.

The company as per their human resource policy declares VRS or the

Voluntary Retirement Scheme. VRS is a scheme whereby the

employee is offered to voluntarily retire from his services before his

retirement date. Subject to certain conditions the company offers VRS

to its employees It is the golden route to cut the excess flab. The most

humane 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 downsize

their headcount. 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.

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. But the company can always

accept or reject the application for the VRS. But usually this is not

done in practical circumstances as it sends wrong signals to the

employees. It might imply that the VRS is not actually voluntary but a

selective procedure of downsizing.

Technicalities

The Voluntary Retirement Scheme is a legal way to down size and thus

it involves certain technicalities. The VRS candidates must have

worked for the organization for minimum of 10 years and also 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. Thus these employees won't be able to

avail the benefit of tax exemption. The employees receiving VRS can

get the tax exemption for the amount of Rs. 5 lacs lumpsum. Anyone

receiving more than Rs. 5 lacs would be charged under Income Tax

Act. Thus an employee opting for early separation and not fulfilling the

age or experience criteria would be taxed on the whole amount he

receives. However the lumpsum amount could be lower of the

following:

· Three months' salary for each completed year of service.

· The monthly salary at the time of applying for the VRS multiplied

by the number of months left before retirement. The normal benefits that an employee gets:

· Provident fund

· Encashed accumulated leave

· Gratuity

· Salary for the notice period

· Cost of transfer to the hometown

Also to make the scheme very attractive for the employees the

severance package as it is called can include other benefits like

· Medical insurance

· Housing loans

· Subsidies on children's education loans, etc.

Hurdles in execution
The Voluntary Retirement Scheme is not as easy as eating the cake. It

deals with actual human beings. It deals with the lives of people who

are offered to end the careers abruptly and probably do nothing for the

rest of their lives. Thus a lot many problems can arise during the

actual execution of the scheme. Some of the problems which could be

anticipated and for which appropriate action plan could be drawn are:

· Non- acceptance of the VRS

· Over-acceptance of the VRS

· Operational problems

· Post-VRS blues

Over and above these anticipated problems, there could be many more

problems, which could arise during the execution of the scheme. These

problems may be industry sector specific, industry specific, company

specific or any other unexpected problems.

The major hurdle in the acceptance of any scheme is trade union. The

trade union does not easily accept such changes even if these changes

are made for the genuine reasons. At the same time over-acceptance

can cause a lot of problems, as it is visible in the PSU banks. Also due

to ongoing retrenchment in the company, the company is vulnerable to

all sorts of operational problems. And if the company does not provide

for the downsizing the company must be prepared to face the postVRS blues.Measures
The company can avoid or reduce the magnitude of any problem

occurring due to the VRS scheme. There are certain aspects, which

have to be kept in mind before offering the scheme.

· The company must have a genuine reason for the downsizing. It

should not be a 'slogan of the week ' nor should it be to oblige

blindly the conditions of the global partner. The company must

be having some genuine reasons to offer the VRS and this is the

first step in getting the things right.

· The company must conduct its manpower planning to analyze

the manpower inventory it has in terms of number and skills and

also the manpower inventory it requires to operate at the

optimal level. This planning should be done considering all the

aspects like automation, technology upgradation, new working

methods like optimization of resources, total quality

management, etc.

· Depending upon the manpower planning the company should

boil down to a number to be downsized and the period over

which downsizing should be done. Keeping these figures in mind

the company must move towards offering VRS scheme.

· Communication is the most important phase of execution of any

VRS scheme. The company should make an explicit

announcement of the scheme all over the organization at the

same time so as to prevent the spreading of any rumors. The

trade union also should be taken into confidence and the all the

facts of the scheme should be explained to them. They should be

explained the need of the scheme and also told that if this

particular number of people are not downsized the company

might face lots of problems in the future which might result into

anything even closure of the company. All the workers in the

organization should be explained the why's and how's of the

scheme. This would make them understand the need of the

scheme. They should be communicated the advantages of the

scheme like lucrative severance package, preclusion of any need

for enforcement. Also the assurance should be given to all the

employees that whoever accepts the scheme would be helped by

the company during the phase of leaving the company to

resettlement. At the same time assurance should also be given

to all those employees that those retained could breath easy, as

they need not worry about further retrenchment.

· In the actual implementation of the scheme the different age

limits are suggested for different levels and this concept has

been extremely successful. The logic given behind this concept is that the people with higher skills retain
their productivity for the

longer time. Also since the qualified personnel are less in

number than that of unqualified ones the model is designed in

that manner. But this theory has received criticism of being

biased for the upper class or being Brahminist. This issue is

debatable but it has worked wonders for many companies.

· Once the scheme is designed, the company should implement

two-pronged strategy of identifying the VRS candidates and also

identify the key performers. This can be done by empowering

line managers and also through the system of performance

appraisal. Once these candidates are identified, these employees

should be counseled accordingly either to accept the VRS or to

stay in the company.

· Keep the promises you made, so as to implement the scheme

smoothly. Include in the severance package different benefits,

which would help employees to accept the scheme. Also offer the

option of receiving the package in lumpsum or in the pension

form or in combination.

· Making the employees accept the scheme is no the only

objective. Also the employees who stay in the company have to

be motivated enough so as to keep going. For this key

performers have to be individually counseled and also the

retraining and redeployment program has to be drawn so as to

keep the managers motivated and so as to adjust to the change

in the organization.

Besides in order to alleviate the effect of the whole exercise, company

should take up few measures that will help to maintain the morale of

the existing employees.

Some of the measures, which could be provided, are:

· Outplacement

· Help of placement agency

· Counseling

Outplacement:
It is the in-house help provided by the organization itself in order to
help the employees during the transition phase from retrenchment to

the resettlement. The company can play an important role by

providing counseling, training, and all the other help required by the

employees. Although this involves cost, however compared to the

advantages obtained in return, it is negligible. It not only helps

organization to convince employees to accept VRS but also helps in maintaining the morale of the
retained employees. Moreover this

exercise also helps in creating good corporate image of the

organization that can help organization in the long term like future

recruitment.Placement agency:

Besides having outplacement facility a company can also take the help

of placement agency. This agency can appraise, counsel and place the

retrenched employees on deserving jobs. Also there have been

practices where company purposefully asks the agency to tell nice

things about the retrenched employees so that they will have the " feel

good " factor to keep their motivation even after the retrenchment.

Counseling:
This is an effective tool to reduce the effect of the VRS. The retained

as well as retrenched employees could be counseled to good effect to

keep up their motivation level.

Conclusion
These techniques that are suggested above give the humane touch to

the downsizing. This is very necessary because it is not only the posts

that are downsized but there are human beings involved in this

process. This process should convince them that the posts in the
organization have become redundant and not the person and 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.

by Shailesh Shetye & Kshama Chopra SIBM, Pune

Source: Business School Papers, Indiainfoline.com

Vrs in sbi case study

In February 2001, India's largest public sector bank (PSB), the

State Bank of India (SBI) faced severe opposition from its
employees over a Voluntary Retirement Scheme (VRS). The
VRS, which was approved by SBI board in December 2000,
was in response to Federation of Indian Chambers of
Commerce and Industry's (FICCI)1 report on the banking
industry. The report stated that the Indian banking industry
was overstaffed by 35%. In order to trim the workforce and
reduce staff cost, the Government announced that it would be
reducing its manpower.

Following this, the Indian Banks Association (IBA)2 formulated a VRS

package for the PSBs, which was approved by the Finance ministry

Though SBI promoted the VRS as a 'Golden Handshake,' its employee unions perceived it to be
a retrenchment scheme. They said that the VRS was completely unnecessary, and that the real
problem, which plagued the bank were NPAs3. The unions argued that the VRS might force the
closure of rural branches due to acute manpower shortage. This was expected to affect SBI's aim
to improve economic conditions by providing necessary financial assistance to rural areas. The
unions also alleged that the VRS decision was taken without proper manpower planning. In
February 2001, the SBI issued a directive altering the eligibility criteria for VRS for the officers
by stating that only those officers who had crossed the age of 55 would be granted VRS.

Consequently, applications of around 12,000 officers were rejected. The

officers who were denied the chance to opt for the VRS formed an
association - SBIVRS optee Officers' Association to oppose this SBI directive.
The association claimed that the management was adopting discriminatory
policies in granting the VRS...
Case study

QUESTIONS FOR DISCCUSION

1. The results of the SBI VRS were not in line with the management's expectations. Comment on the above
statement and discuss the effects of the VRS on SBI.

2. In most of the VRS implementation exercises in Indian PSUs, the largest number of applicants have been
from the officer cadre. Was SBI wrong in not anticipating this for its VRS? Also comment whether SBI was
justified in altering the eligibility criteria for the officer cadre to restrict their outflow. 

3. The outcome of the SBI VRS has highlighted the need for proper manpower planning and HRD policies in
Indian public sector banks. Discuss the various steps to be taken by the SBI in the post VRS scenario?

ADDITIONAL READINGS & REFERENCES

1. Mandal Kohinoor & Mukherjee Arpan, Voluntary retirement scheme by September, June 23, 2000, Indian
Express.
2. Ray Chaudhuri Sumanta, State Bank's VRS likely to leave pension fund deep in the red, November 21,
2000, Financial Express.
3. SBI VRS targets to shed over 25,000 staff, December 28, 2000, Indian Express
4. Sahad P.V, SBI employees protest over VRS, December 28, 2000, India Today
5. SBI unions to seek review of VRS, December 31, 2000, Economic Times.
6. Ray Chaudhuri Sumanta, SBI staff wants VRS period extended, January 3, 2001, Indian Express.
7. Ray Chaudhuri Sumanta, SBI bars treasury managers, forex dealers from VRS, January 9, 2001, Financial
Express.
8. SBI may amend criteria for VRS, January 23, 2001, Indian Express.
9. Bankeshwar S Suresh, SBI needs to reorient its HRD policy to counter VRS fallout, January 25, 2001,
Financial Express.
10. Ray Chaudhuri Sumanta, VRS to cost SBI Rs 2,400 crore if all applications are accepted, January 31,
2001, Indian Express.
11. 32,000 employees apply for SBI's VRS, February 1, 2001, Indian Express.
12. SBI to reject 10,000 VRS applications, February 3, 2001, Hindustan Times.
13. SBI downplaying VRS numbers – Unions, February 5, 2001, Indian Express.
14. Ray Chaudhuri Sumanta, SBI brass gets circular mania over VRS, February 8, 2001, expressindia.com
15. SBI officers allege discrimination in VRS rules, February 19, 2001, Financial Express.
16. Officer optees of VRS criticize SBI move, February 20, 2001, Business Line.
17. SBI VRS optees may go to court, February 28, 2001, Business Line.
18. VRS – denied SBI officers plan action, March 20, 2001, Business Line.
19. Action plan initiated by SBI officers denied VRS, March 20, 2001, Economic Times.
20. After VRS jubilation, SBI faces superannuation kick, March 27, 2001, Economic Times.
21. Kumar Rishi, SBI: Rejected VRS optees may move court, April 23, 2001, Hindu Business Line.
22. Kumar Himendra, Reporter's Notebook, May 4, 2001, Business Week.
23. SBI aims to hike advances by Rs 18,000 crore, June 21, 2001, Hindustan Times.
24. Shetty Mayur, The big bank theory, July 18, 2001, Economic Times.
25. Shukla Nimish, SBI revamp to see loss-making branches merged, July 20, 2001, Economic Times.
26. Goswami Nandini, Life after VRS: Nationalized banks facing shortage of staff, August 18, 2001,
Economic Times.
27. www.banknetindia.com
28. www.indiainfoline.com
29. www.bankersindia.com
30. www.equitymaster.com
The State Bank Of India Vrs

Facts:
• December 2000, a report by FICCI said Indian banking industry overstaffed by 35%
• February 2001, SBI came up with VRS aimed mainly at clerical staff and sub-staff
• Evoked strong protests from its employees who alleged it would lead to acute shortage of manpower
• 35,000 applications received out of which 19,295 applications from officer’s cadre
• SBI modified eligibility criteria to opt for VRS for which it faced discriminatory allegations
• Around 8,000 officers eligible for VRS after the modification
• SBI’s total staff strength expected to fall by 15% after the VRS
• SBI reduces its regional offices from 10 to 1-2 in each circle and faces shortage of manpower as anticipated by the
union
• SBI senses intense dissatisfaction and lack of motivation in its employees due to its feeble HR policies 

Problems:
• Lack of effective HR policies with respect to ‘Manpower Planning’
• Bureaucracy with respect to ‘Performance Management System’ 
• Lack of innovation

and laggard in technology

• HR policies lacking strategic outlook – not in sync with their objective of diversification and 
• expansion of the business

Evaluation Criteria:
• Retaining talent and enhancing expertise
• Regaining its core strengths – customer base and reach
• Adopt modern techniques and be at par in technology with other banks

Plan of action:
• Appoint a Strategic HRM team to align the HR policies with long term business objective of the bank
(Diversification needs increased manpower)
• Job enlargement and job rotation is required to increase expertise in the employees. This can help in promoting
clerks to officers which is the need of the hour
• Analyse the demand- supply gaps in various regions and reorganize staff to meet demand
• Develop a more efficient recruitment process to make sure that there is no shortage of manpower
• Nominate existing and new employees for contemporary training, so that they can be use technology more
efficiently