“Take a back seat” in the management of retirement

A company with a longer history may have more senior managers who are going to retire. The successors are ambitious. As the old saying goes, “There is a radish in every pit”, so there must be conflicts of interest between those senior managers and their successors.

In Japan, many companies implement a “fixed service year system”, which means that companies would adjust the positions of those senior managers from the management positions to the assistant positions or other specialized positions. The purpose is to vacate the “pit”, allowing the successors to have longer time to take over relevant responsibilities. Then, whether such system could be implemented in China?

In fact, some state-owned enterprises and banks in China have implemented a similar system, which is named as “take a back seat” system in practice, that is, the employers change senior managers’ positions to non-management or deputy positions two years before retirement, by which, those senior managers could assist their successors in those two years. Therefore, the similar system is not a pretty new system in China.

However, such system shall be implemented case by case. Because employers are different from the perspective of industry, business situation, talent’s structure and etc.. It is recommended to take the following key issues into consideration before the implementation.

(1) Which levels or positions are targeted? Are there any special positions or personnel that require exceptional policies?

(2) How many years ahead is the period set for such system? Shall the period be a one size fits all targeted employees, or be decided based on different levels of positions? Such system involves the conflicts of interest between those senior managers and their successors, so the period is not the longer the better.

(3) How to adjust the salary of those senior managers? For example, will you set a rule that all position allowances would be cut off, or the salary could be adjusted flexibly?

From the perspective of legal risk prevention, it is recommended to pay attention to the following aspects.

Firstly, employers shall establish a reasonable “take to the back seat” system and conduct democratic procedures in accordance with the law.

A common practice is to establish the “take to the back seat” system as a component of the retirement system. In judicial practice, if the “take to the back seat” system has undergone democratic procedures and is not manifestly unreasonable, its effectiveness would be recognized.

Regarding the rationality of the “take to the back seat” system, there are two key points. The salary shall not be cut down in a large range, otherwise it is highly possible of being deemed unreasonable. Moreover, if the change is significant, it would affect the motivation and coordination of those senior managers. In addition, in view of the different retirement age for female employees, such system shall not affect the retirement age for female managers in principle.

Secondly, employers shall pay attention to the following issues while implementing such system.

It is necessary to conduct a thorough investigation of the situation of those senior managers, their successors, and their direct subordinates in advance. For personnel in important positions, it is also necessary to prepare risk prevention plans.

It is necessary to conduct interviews with those senior managers, listen to their voices and suggestions, acknowledge their contributions, and encourage them to leverage their experience and skills to assist their successors or other tasks arranged by the employers.

During the coexistence period of those senior managers and their successors, it is recommended to closely monitor the business communication between both parties and their direct subordinates. If there is any conflict, the company shall intervene or coordinate by appropriate means timely.