Implementation of VRS in India

Socially, the implementation of VRS in India carries many concerns. In a country characterized by one of the highest unemployment rates in the world, employment is also a status symbol in the society.

In one of the organizations in the state of Bihar, employees frequently stated:  Loss of job also creates problems in the marriage of children. The families of prospective fiancée of our children resist such marriages as our unemployment adversely affects the joint family income. Politically, the union leaders seem to have accepted the ground realities of VRS. The managements of organizations frequently respond to the resistance to VRS from unions by creating a perception of possible dissolution of the organization. The government has supported VRS by exempting income tax on the money received as VRS compensation up to Rs 0.5 million. Internally, the schemes envisage that unproductive employees would leave the organization voluntarily if compensated adequately for job loss. The success of VRS depends on its ability to attract larger number of targeted employees to accept the scheme at the least cost to the organization and its least negative influence on retained manpower. Some studies (Zamutto and Cameron, 1985) indicate that people who carry high self-efficacy have high propensity of leaving the organization while the under productive employees may stay longer with the organization. It is likely to create difficulties to achieve higher performance in the organization. These varied concerns make the managers, academicians, and researchers wonder how to make VRS effective in organizations. This paper examines the characteristics of VRS and factors that influence their effectiveness in India.


There are several reasons for organizations to introduce VRS. The most common among them are to:

  1. Improving efficiency:
  2. Responding to decline in sales and increase in cost:
  3. Reducing overhead costs
  4. Protecting long-term interests of the organization
  5. Achieving technological advancement:
  6. Restructuring the organization


Our discussion with managers in the companies showed that they spent substantial time to decide on the following characteristics of VRS:

  • duration of VRS
  • eligibility for VRS
  • discretion to managers
  • compensation.


We had extensive discussions with senior managers, employees, union leaders, and civil authorities in four organizations which had improved their performance significantly and had achieved significant manpower reduction through VRS. The key characteristics of VRS implementation in these four cases are:

  • Transparent and proactive communication:
  • Active exploration of other alternatives:
  • Involvement of multiple stakeholders in VRS implementation process
  • Developing trust among employees regarding fairness, honesty, and commitment:


The study was conducted with an objective of understanding the characteristics of VRS and factors that influence their effectiveness in India. The study attempted to find relationship between the contents of the VRS of the organizations and improvement in their performance.

It is found that no ‘fixed’ pattern has evolved for VRS among Indian organizations. All the organizations had some unique characteristics in their VRS. No specific sector of organizations has fully benefited from VRS. The ownership of the organization did not differentiate in the success of VRS. Organizations that unequivocally stated their objectives of VRS performed better than others. These organizations laid emphasis on communicating the actual situation to their employees even before going for manpower reduction. This helped them to build trust among the employees opting for VRS and the survivors who perceived the process to be transparent. It also reduced the ‘guilt’ perception among survivors. The study found that the organizations that kept their scheme open for shorter period (e.g. one day to 15 days) showed decline in their performance. As the time period for the scheme increased, the organizations showed improvement. However, when the time period increased very high (e.g. more than three months) their performance again declined. This shows that the organizations that kept their scheme open for appropriate time got a chance to plan their scheme and remain focused and could implement the scheme successfully.

According to the study, organizations that offered VRS to younger and less experienced employees showed decline in their performance while those that offered to the older employees had better chances of improving performance.

All the organizations in the study calculated the compensation in different manner. Effective organizations had a thrust on completed years of service to calculate compensation while the ineffective organizations were found to have higher thrust on remaining years of service to calculate compensation under VRS. The study shows that if VRS is to be successful, it has to be adequately planned. The organizations should be clear in their objectives of offering VRS and they should explicitly mention these objectives in their schemes. They should make the scheme as transparent as possible and be open for any communication and clarifications to make the employees develop trust. They should keep the scheme open for appropriate time so that the organizations as well as the employees get enough time to take this crucial decision. The organizations should carefully target persons for VRS. They should be careful that the crucial manpower required for running the organization is not allowed to go out. The compensation criteria for VRS should be decided according to the targeted population.

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