VRS (Voluntary Retirement Scheme)

VRS is defined as a method that is 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 “Golden Handshake”. Generally, employees who have attained the age of 40 are eligible for voluntary retirement.

However, the eligibility criterion for a voluntary retirement scheme is different in different organisations. Except for the Directors of the company, this scheme applies to all the employees including workers and executives.

VRS- Voluntary Retirement Scheme Benefits, Reasons and Problems

Reasons for VRS

Reasons for VRS are as follows:

1) For Organisation:

Under the following circumstances, an organisation may choose a voluntary retirement scheme:

(a)  Business recession,

(b) High market competition,

(c) Technological changes, the process of production, new product line, innovation,

(d) Re-alignment of business,

(e) Joint ventures with foreign collaborations,

(f)  Mergers and acquisitions, 

(g) Business re-engineering process, and

(h) Product/technology obsolescence.


2) For Employees:

The reasons for acceptance of VRS by employees are as follows:

iFear of Uncertain Future:  A feeling of fear develops among the employees due to which they are compelled to adopt the VRS. Although VRS is considered to be voluntary, 62% of 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 VRS when they require money to fulfil their requirements. Money can be required for the repayment of loans, the marriage of a daughter, the purchase of a house, etc.


iii) Job Dissatisfaction: If the employee is not satisfied with the job then 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 declines. So, old age can be a reason for VRS. Sickness is another reason why employees go for VRS because a sick employee is unable to do the work as he suffers from fatigue, and 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 instead of VRS then the employee accepts VRS. This handsome amount offered to employees is known as a “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.


vi) Other Issues: Some other reasons for VRS are; 

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

b)  Family Pressure: Some workers, especially female workers have pressure from their families and therefore due to the pressures of the family, they 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 VRS

Benefits of VRS include:

1) In case of retrenchment, there are legal formalities that need to be fulfilled before the employee is retrenched. However, in VRS there are no such legal hindrances and VRS can be put to use very easily. 

2) Instead of VRS the financial benefits provided to the employee are very much attractive as compared to that of retrenchment.

3) As VRS is voluntary conflicts are voluntary, and there is no need for any kind of pressure from the management. This prevents the between employer and employee.  

4) If there is a surplus of labour in any department or division, then by implementing VRS the number of labours can be reduced. 

5) Since in VRS the number of employees declines, 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 employees who are adopting VRS. Therefore, VRS prevents bitterness and dissatisfaction.

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