What Happens to Younger Workers When Older Workers Don’t Retire

For years in the world of symphony orchestras, available positions for oboe talent were scarce. Young oboists waited for chairs at top orchestras to open up, but many principal oboists who had held their positions for decades simply weren’t retiring. It’s impossible to know how many younger players gave up, changed professions, or lingered in the lower ranks bitterly for years. In the early 2000s, however, many of the senior oboists began to retire. Those departures freed up spots at the top, which freed up spots below that, and so on. Advancement for oboists was suddenly possible. One promising young oboist described the moment as a “gift from heaven.” The oboists’ dilemma is a tidy model for what’s beginning to happen more broadly across entire economies, as many workers decide to stay in the workforce past retirement age. These “slot constraints” in organizations hold back high-potential younger workers as older ones stick around, and create boom-and-bust cycles of talent demand. The problem can create intergenerational conflict, through what we refer to in our research as “career spillovers.” Intertwined internal and external forces cause spillovers within a firm. Internally, spillovers occur when a firm is limited in its ability to provide advancement opportunities for its employees — what we call “career capacity” — so that one employee’s advancement comes at the cost of her coworkers’. This can mean that when older workers delay their retirement, younger workers’ career advancement stalls. We have studied these issues in the past, and our current research continues to investigate the quantitative impacts of delayed retirement. At the same time, external forces — industry conditions and macroeconomic trends — shape a firm’s career capacity. When orders aren’t coming in, the business can’t grow; if the business isn’t growing, it can’t create career advancement opportunities. This creates a vicious cycle. Since younger firms tend to grow more quickly than mature firms, the spillover effect is felt most deeply in mature firms. The slower-growing firms then lose talent to faster-growing ones where career capacity is less diminished, thus making it even harder for mature firms to compete for new growth. The changes in public policy and the inexorable demographic data compound the challenge of limited career capacity. At the macroeconomic level, most high-income countries have seen an increase in the median age of their populations, which translates to more older workers. Older employees often occupy higher-level positions in their organizations and tend to have lower turnover rates during their last few years in the workplace. Retirement is taking place later and later, both out of choice and because most countries have increased their retirement age due to budgetary pressures. When we think about a firm’s strategic decisions regarding growth and direction, we typically focus on external factors like business opportunities, rather than considering how an internal force like a firm’s career capacity can affect its fortunes. An increasing volume of evidence, however, shows that neglecting career advancement, or being unable to provide it, can lead to employee attrition, especially among high-potential workers. In his 2008 book Talent on Demand, Wharton professor Peter Cappelli emphasized that “[f]rustration with advancement opportunities is one of the most important factors pushing individuals to leave for jobs elsewhere.” This frustration can lead to intergenerational conflict. Indeed, a KPMG survey carried out in 2013 found that “46 percent of people agreed with the proposition that older members of staff should retire so that younger workers could have a genuine chance of promotion.” This situation is unfortunate for everyone involved and has only gotten worse over the last few years. The wicked problem is this: Firms need to expand career capacity in the face of demographics that suggest older workers aren’t going anywhere even as younger workers want them to move on. While there are no silver-bullet solutions, our research points to some approaches that may be effective. Encourage turnover at the top. If firms limit the amount of time higher-ranked employees can stay in their positions, advancement is engineered into the firm. An orchestra, for example, might limit the tenure of first oboists to no more than 15 years. Mandatory-retirement policies encourage turnover, as well; in recent years, we’ve seen increases in forced partner buyouts in law, consulting, and accounting firms as a way to expand career capacity. Other forced-turnover policies such as stack ranking can serve a similar role. The obvious drawback to these strategies is that they may involve forcing out valuable talent. They have other pitfalls as well. For example, decreased job security through mandatory term limits may make jobs less desirable in the first place; while younger workers want older workers to get out of their way, they likely won’t want those same policies applied to their own situation. Stack ranking can undermine incentives employees have to help each other, which is why many prominent firms such as General Electric and Microsoft have stopped using it. And for many years, the uneven application of mandatory-retirement policies gave firms cover to discriminate against older workers, which led several countries to abolish them altogether. While involuntary departures can be hard on employees, they can be made less painful if firms find ways to facilitate post-departure careers. If the company can find attractive opportunities elsewhere for workers when they leave — a practice that is common in top management consulting firms such as McKinsey & Company, for example — they can ensure that high-level jobs remain attractive even if they are less secure. Expand the hierarchy. Instead of forcing people out of chairs, add more oboists. Expanding career capacity — putting more positions at the top — creates advancement opportunities without losing what’s already there. This may, however, create top-heavy organizations with a new set of problems. A prominent example of this is the “brass creep” phenomenon in the U.S. military, in which the relative number of high-ranking officers spiked at the end of the Cold War. As one article on the phenomenon noted, “In World War II, there were 30 Navy ships for every admiral. Now, the Navy has more admirals than ships.” In addition to being expensive, having too many cooks in the kitchen can lead to slower and worse decisions: When everyone is in charge, no one is in charge. One approach to creating more positions at the top without creating chaos is to set up a job rotation policy whereby workers can take turns being in the leadership position. While this approach may seem unorthodox, it has been pursued by the successful Chinese telecom giant Huawei, where “three deputy chairmen act as the rotating and acting CEO for a tenure of six months.” Plan for growth. Ideally, firms and industries can create career capacity through growth. Form more orchestras! Peter Drucker’s famous case study on Callahan Associates in 1977 described a firm that engineered growth by becoming a chain of chains. It started out as a supermarket chain, then developed a chain of garden centers, then home-service centers, and then greeting card stores. It did so because the CEO, Bill Callahan, “deeply believed that the company had to expand to give people promotion opportunities,” and “this meant going purposefully into new businesses every six or seven years.” While this strategy expands career opportunities, it may also mean pursuing unusual or risky opportunities, and it can appear unprofitable to outsiders and investors. If left unchecked or pursued in a reactive manner, it can become a cancer on the organization. Engaging in this type of growth requires thinking carefully about the long-term costs of hiring someone and providing them with a fulfilling and motivating career. This approach may mean forgoing profitable short-run opportunities — a mindset that may have been more palatable when Drucker was writing in the 1970s than it is today. Still, companies pursue growth, and it will be part of any strategy aimed at increasing opportunities. The career capacity challenge could be one way to jolt an old firm into the kind of new thinking it needs in order to grow. . . . Running a successful organization requires striking the right balance between taking advantage of external opportunities and managing career opportunities. Our research has shown that in many situations the best way to motivate workers is through career-based incentives. When career opportunities are mismanaged, the performance of the firm suffers both in the short run, because of career spillovers and intergenerational conflicts, and in the long run, because such conflicts may make it difficult for the firm to attract new talent. As we’ve shown here, there are ways for firms to expand their career capacity and reduce these conflicts, although all of these approaches have costs as well. Firms should compare the costs and benefits and not rely on any single approach. An integrative and thoughtful strategy that combines all of these solutions can be the most effective. The Big Idea

What Happens to Younger Workers When Older Workers Don’t Retire

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