The practice of employment discrimination based on age is unethical, illegal, and has negative short and long-term consequences for US business.
This study will explore the short and long-term ethical, legal and economic ramifications of age-based employment discrimination. This will include a study of unethical, implicit age discrimination practices such as "forced rankings." In addition, potential legal consequences for business will be examined in response to the US Supreme Court's recent ruling on Smith v. City of Jackson  , a "disparate impact" age-based employment discrimination case. This study will also explore demographic and economic trends related to the aging American workforce and conclude with some examples and case studies of how US business can effectively leverage the aging American workforce.
The Age Discrimination in Employment Act (ADEA) was enacted in 1967 to protect persons 40 years of age and older from employment discrimination on the basis of their age.  The ADEA prohibits employment decision making on the basis of age including hiring, termination, assignments and promotions.  It also explicitly bars age discrimination in the provision of employee benefits, including early retirement incentive programs and company-provided employee health benefits. The Equal Employment Opportunity Commission is congressionally mandated to enforce the ADEA.  Prior to the enactment of the ADEA, there was no law explicitly prohibiting age discrimination in the workplace. Although language in the ADEA mirrors the Civil Rights Act (Title VII), the Supreme Court has not had the opportunity to determine if application of Title VII precedent is appropriate to the ADEA context. Thus, the Supreme Court has left it up to the individual Courts of Appeal to make their own determinations.  This "hazy" precedent for the interpretation of ADEA violations has left the door open for businesses to bypass the ADEA and thus indirectly force out older, more expensive workers. One such practice is known as "forced ranking", or "rank and yank".  This unethical, but legal practice has enabled some U.S. companies to reduce costs (i.e., older, more expensive workers) by exploiting loopholes in the ADEA
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Forced Ranking is a performance-based evaluation system in which employees are ranked against each other based on a particular scheme or design.  Some companies use a normal distribution curve to identify low performers, other companies use a quartile system placing 25% of ranked employees in one of four cells depending on performance. The Ford Motor Co. used a forced ranking system which placed "A" employees in the top 10%, "B" employees the next 80%, and "C" employees the bottom 10%. In Ford's forced ranking system, "A" employees were eligible for raises and bonuses, "B" employees for smaller raises and bonuses, and "C" employees received nothing. A second "C" evaluation could mean immediate termination. The rationale for companies using forced ranking is that it identifies and rewards the best performers while forcing out the poor performers ensuring that the company will have a constantly improving and loyal workforce and remain competitive.  Companies using forced ranking performance evaluation systems maintain that the practice discriminates only against the "lazy and dull" and does not discriminate against the "talented and energetic". These companies contend that the practice is neither illegal nor unethical and has a valid business purpose. 
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Opponents of forced ranking allege that forced ranking systems consistently place older workers in the lowest categories at disproportionately high rates.  This would allegedly provide the means for an employer to maintain a younger and less expensive workforce, without breaking the provisions of the ADEA. In this way, a forced-ranking system could serve as a purposeful guise for intentional and illegal age discrimination.  In 2003, 34% of US firms were using forced ranking employment performance evaluation systems including major companies such as General Electric, Cisco Systems, EDS, Hewlett-Packard, Microsoft, Pepsi Co. and others. However, a number of cases in the past few years have put the practice of forced ranking under scrutiny. In one such case in 2001, Goodyear implemented a 10-80-10 ABC ranking system which was ruled in violation of the Ohio age discrimination law in Jones v. Goodyear Tire & Rubber Co.  In 2005, the petitioners in Smith v. City of Jackson,  were police and public safety officers who alleged that the majority of the officers over age 40 and who had worked at least 5 years, were awarded smaller wage increases than equivalent officers under age 40 who had worked at least 5 years.  The petitioners alleged that the City of Jackson, Mississippi had intentionally discriminated against them because of their age (disparate treatment) and that they were unintentionally "adversely affected" by the pay plan due to their age. (disparate impact).  On writ of certiorari, the U.S. Supreme Court chose to address only the disparate-impact claim, taking the opportunity to clarify and offer guidance into the application of the ADEA  In the end, the Supreme Court held that older workers may sue under the Age Discrimination in Employment Act (ADEA) under the theory of disparate impact, rather than having to prove disparate treatment.  This decision potentially has very important short and long-term consequences for business. To succeed on a disparate treatment case related to age discrimination in employment, the plaintiff must prove that the defendant employer intentionally discriminated against him or her on the basis of age.  Historically, this has been very difficult to prove. Of the 17,837 age-discrimination complaints filed with the EEOC in 2004, the agency found "reasonable cause" to believe that discrimination had occurred in only about 3% of the cases.  Prior to the Smith case, a split had emerged among the Circuit courts with a majority of them categorically disallowing any age discrimination cases to be brought on a disparate impact theory.  Now, however, the Supreme Court's ruling has opened the doors for a new wave of age-discrimination plaintiffs to step forward and make their cases. This legal precedent is certain to have a profound impact on U.S. business. Regardless of ethical considerations, an employer must now carefully consider whether his existing or contemplated actions will have an adverse impact on any employee over age forty. If the employer chooses to cut costs by terminating older workers occupying higher-paying positions, he runs a significant risk of being charged with age discrimination under the ADEA via the disparate impact theory.  This heightened risk, along with the additional cost of monitoring every employment decision to try to avoid a disparate-impact lawsuit will likely negate any expected savings from work force reduction. In the past, US business has been able to leverage ethically dubious devices such as forced ranking to leverage loopholes in the ADEA and realize cost savings through implicit age discrimination. Since the Smith case could potentially represent a legal "trump card" for employees facing age-discrimination termination or reduction of benefits, clearly the risks outweigh the short-term benefits of implicit age-discrimination in employment. Now, US businesses will need to rethink how to recruit, hire, and retain older workers to their advantage, so that they these older workers will prove to be assets and not liabilities to the company.
Rethinking the American Workforce
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Conventional thinking about the American workforce is that young people are productive, older people are less so; young people are healthy, older people are less so; and that young people are a more worthwhile investment because they will be around longer and add more value to the company than older workers.  These only partially-true myths have given rise to both unethical practices such as forced rankings and illegal discrimination against older workers in the U.S. workforce as a means to control costs and maintain profitability. However, there are some significant demographic changes coming soon to the U.S. workforce that employers should give consideration to in preparing for the future and maintaining competitive advantage. By the year 2015 the number of workers age 55 and older will reach about 30 million or 20% of the total work force, up from 12% today. This "graying" transformation of the American workforce will also have a concomitant shortage of perhaps as many as 5 million skilled younger workers to replace retiring baby boomers.  However, a Merrill Lynch survey reported that about 76% of baby boomers say they want to continue working in some capacity after they reach retirement age, but on their own terms.  Reynolds, Ridley, and Van Horn of the John J. Heldrich Center for Workforce Development even contend that, "the traditional notion of retirement- where one stops working completely and enjoys leisure with friends and family- is obsolete."  There are several reasons to expect that older workers will postpone retirement and that retirees will reenter the labor force, including: stagnant private pension coverage, eroding retiree health benefits, inadequate personal savings to cover longer life expectancies, improved health status at older ages, service sector growth of less physically demanding jobs, and employer demand in the light of anticipated labor and/or skill shortages.  These mature, baby boom workers will wield a lot of leverage as more and more of them reach retirement age, not only because there are not large numbers of readily available younger replacements to take their places, but also because they are already some of most experienced and well-trained employees in the workforce today. In addition to demographic trends, legislation changes over the past few years have made it easier and more worthwhile for older workers to remain in the workforce including the passing of the ADEA,  the Senior Citizens' Freedom to Work Act of 2000  , and the increase in age of eligibility for full Social Security benefits.  Clearly, if the baby boom generation is going to redefine what retirement is given recent demographic and legislative trends, US companies will need to rethink how to effectively handle this impending transformation in the American workforce or suffer potential loss.
Leveraging the Aging American Workforce- a Great Opportunity for US Business
Many US businesses have been so focused on downsizing and cost containment for so long that they have neglected a larger looming threat to their competitiveness, the aging of the American workforce. The impending demographic changes in the age makeup of the U.S. workforce will require forward-thinking companies to rethink their recruitment, hiring, placement, support and retirement strategies for older workers. Some industries are already feeling the pressure of the demographic shift. Aerospace and defense, utilities, healthcare, insurance and financial services, and public education are at risk of a "talent-drain" as mature workers retire and too few skilled replacements are available.  In addition to worker shortages in white-collar professions, blue-collar industries such as construction and heavy manufacturing that are heavily dependent on skilled trades and federal government face substantial talent shortages in certain areas. The good news is that even as many U.S. companies are beginning to learn how to market to an aging population, so also they can learn how to attract, employ, and retain older workers and leverage this resource to their competitive advantage.
Leveraging the Aging American Workforce- Recruitment
One way to leverage the older American workforce is to create a culture that honors experience.  Mature workers are more likely to respond to recruiting advertisements that emphasize qualities such as "experience", "knowledge", and "expertise" rather than help wanted ads emphasizing "energy", "fast pace", and "fresh-thinking."  In order to capture and leverage this older workforce it will be necessary to connect with these candidates before they're ready to take a retirement deal from their employer and run. Interviewing methodologies emphasizing psychometric and verbal-reasoning skills might be better replaced with role-playing exercises to gauge older candidates' abilities to handle job-relevant situations.  Training and development activities may need to be retooled to help returning older workers gain needed skill updates in information technology, functional disciplines, and nonhierarchical management methods. 
Leveraging the Aging American Workforce- Retention
While older workers won't sign on or stay with a company that sends unwelcoming signals through its HR or recruitment processes, the actual substance and organization of the work itself is critical to retain these older workers.  Forward-thinking companies need to design jobs in such a way that it is more attractive for the older worker to stay than to leave. Older, baby-boomer aged workers want to keep working, but under less pressure with more time flexibility in order to pursue other interests. One company that has successfully retained an older work force to its advantage is ARO Inc., a business process outsourcer based in Kansas City. In 1998, the company struggled with a staff turnover of 25% which limited its productivity and ability to grow.  The CEO, Michael Amigoni, found a way to cut costs and improve service by upgrading the company's technology thus allowing 100 teleworkers to work offsite. The company then actively recruited older, baby-boomers approaching retirement who appreciated the flexibility the position offered by allowing them to work from home. Inadvertently, Mr. Amigoni discovered that the older work force was a better match for his clientele, since much of the company's back office work is related to health insurance claim processing. Employee turnover is now down to 7% and productivity is up by 15%, primarily due to the addition of more seasoned workers.
Scripps Health in San Diego practices flexible schedules and jobs sharing specifically targeting the recruitment and retention of older, mature workers.  Through Scripps' Career Transition Program (CTP), the organization is able to quantify the return on investment of its recruitment and retention efforts in an industry facing a talent shortage. Scripps reported that from October 2002 through March 4, 2004, the CTP had realized total savings of $684,451 to the organization by placing employees internally and externally and in addition it had a high success rate in "placing mature workers both within and outside of the organization." 
Leveraging the Aging American Workforce- Retirement
Finally, if US firms are to leverage the aging American workforce, they need to think in terms of
flexible retirement. Retirement, as it's currently understood in the U.S. with social security and pension plans, is a relatively recent post-Depression phenomena. In fact, a recent AARP/Roper Report survey found that only 16% of baby boomers said that they wouldn't work at all during retirement, but 80% said that they would work at least part time.  In addition, firms that have traditionally offered early retirement incentives to reduce costs may find that they are simply shifting expenses from employee health care accounts to retiree health care accounts.  In order to leverage the experience and availability of the aging American workforce, a more flexible retirement concept than the post-Great Depression model is needed. Current IRS regulations prohibit defined benefit plans from making distributions until employment ends or an employee reaches "normal" retirement age. However, a growing number of companies, including IBM, HP, CVS and Apple Computer have figured out ways to reconfigure their benefits and pension programs to accommodate and leverage the senior segment of the workforce.  Typically, these programs allow an employee to take retirement and then after a specified time (e.g., six months), return to the employer as an independent contractor, typically for a maximum 1,000 hours per year. This type of flexible retirement arrangement allows companies to utilize these senior workers for special projects that require their specific skills and experience and for stop-gap interim leadership when executive leadership changes are underway.
One example of a company that successfully leverages its retirees is Aerospace Corporation, an R&D and systems engineering service provider for the U.S. Air Force. Their program is known as "Retiree Casual" and keeps about 200 retirees working as independent consultants with another 300 in reserve.  A few of these part-time retirees are so indispensable that they must be dropped from the program and rehired through an agency after they hit the 1,000 hour limit. Most retirees participate in this program through their mid-sixties, with some beyond 80. George Paulikas, a participant in the Aerospace Corp. Retiree Casual Program remarked, "You don't want people with enormous experience to just walk out the door. This program is a pleasant way to stay associated with a great organization, great people, great work. I get to work less often and with less intensity."
Monsanto has a similar flexible retirement program called "Resource Re-Entry Center."  It's open six months after retirement for all retired employees in good standing. Managers are directed to use retirees for job sharing, cyclical spikes, and for temporary positions in case of unplanned leaves.
People don't all of the sudden lose talent and experience gained over a lifetime of work once they
reach an arbitrary retirement age. In some cases older workers are more expensive if kept on full time and may not be as fast and sharp as younger workers. Employment practices such as forced rankings may be unethical and illegally veiled acts of age discrimination. With the Supreme Court's willingness to open the door for ADEA violations based on disparate impact theory, employers may find it to be ill-advised and costly to force out older workers. This along with coming demographic changes in the U.S. labor force including a sharp rise in older workers without a corresponding rise in younger replacement workers, may force many firms to re-evaluate the place of senior employees in their organizations. Smart firms that are able to proactively recruit, retain and offer flexible retirement arrangements to older workers will be positioned to capture competitive advantage and will not miss out on this great opportunity to leverage the aging U.S. work force.