Medtronic (NYSE:MDT) offered early retirement incentives in recent weeks as the world’s largest medical device company seeks to cut costs before the end of its fiscal year in April.
The medical device developer and manufacturer has said little about potential job cuts among its ranks, which it reported as more than 95,000 people worldwide at the end of the company’s last fiscal year.
Fridley, Minnesota–based Medtronic has promised “significant expense reductions” in the final quarter of its fiscal year, which ends April 28, 2023. Meanwhile, MassDevice has reported on more than 19,000 medtech workers let go across the industry since mid-2022. (If you have information to share on or off the record, get in touch with me by email or LinkedIn.)
“Medtronic continually evaluates its operations to ensure a competitive business model aimed at long-term growth aligned to the needs of our customers,” the company said in a statement to MassDevice today.
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The new early retirement offer requires employees to leave the company on or before April 28. Employees who wished to retire early had until March 6 to opt-in.
The voluntary early retirement program, or VERP, was a “limited-time opportunity to retire early with enhanced benefits,” Medtronic said in publicly available materials detailing the plan.
Employees could accept the offer between Feb. 13 and March 6. With that window now closed, Medtronic said any eligible employee’s decision made in that time is “irrevocable.”
Medtronic told those who intend to take the offer to notify their managers and give at least two weeks notice — though Medtronic said it would also notify managers of employee decisions.
Employees will also be required to sign release forms by June 30 in exchange for the benefits. That agreement will release Medtronic from liability of known and unknown legal claims, including wrongful discharge, employment discrimination and others. Employees who opted to retire early but who decline to release Medtronic from claims will remain terminated without the early retirement incentives.
Soliciting voluntary departures through early retirements is a way companies can avoid layoffs — or reduce severance, unemployment and legal costs if layoffs do follow.
“It’s highly likely that people who opt in are doing so because a bird in the hand may be worth more than two in the bush,” medtech search firm CEO Joe Mullings said. “On the flip side, there’s sometimes an incentive to the company to offer up an early retirement program because it’s less expensive net/net than paying out severance.”
And getting early retirees to sign legal releases can reduce the risk of lawsuits alleging age discrimination or other claims following layoffs, Mullings said.
“I’m not saying that is [Medtronic’s] overt strategy, but those are data points to consider as companies start to impact the workforce in an already litigious employment environment.”
Medtronic last offered early retirement incentives in summer 2020, a spokesperson said. That September, the company announced a multiyear reorganization to cut hundreds of millions of dollars from its expenses. Medtronic acknowledged employee reductions in the restructuring but declined to say how many, and the company does not report precise employee counts in its annual reports.
Who was – and wasn’t — eligible for Medtronic’s VERP?
Employees were eligible if they were at least 54 years old as of Jan. 1 and as of that date had been actively employed by Medtronic in the U.S. for at least 90 days. Those employees would also need to be participants in Medtronic’s retirement plans.
Medtronic’s VERP offer does not apply to SVPs or above or any employees entitled to Medtronic severance plan benefits.
Employees who have joined Medtronic from acquired companies Affera or Intersect ENT were also not eligible for the early retirement program.
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The program specifically excluded employees in Medtronic’s Global Operations & Supply Chain and Global Operations Quality organizations, along with anyone in cyber information assurance, cybersecurity, medical safety or network jobs. That could be a signal that Medtronic intends to spare them from any workforce reductions.
“For business reasons, some employees will not be eligible for the program,” Medtronic said in a video explaining the program.
Medtronic CEO and Chair Geoff Martha has acknowledged supply chain and operational shortcomings in recent years, so executives may want to hold on to as much of EVP Greg Smith’s team as possible.
“With regard to which employees were offered VERP, Medtronic must balance the potential benefits of offering the program with the need for business continuity,” the company said in its statement to MassDevice. “Given the critical nature of certain roles or skill sets to the company, there were certain groups who were not eligible to participate.”
Medtronic’s VERP offer
What’s in it for early retirees? Depending on the employee, the program will add five points to pension plans and one-time, $10,000 contributions to retiree medical accounts or retiree health reimbursement accounts. Medtronic also offered additional employer contributions for certain 401(k) plan participants.
“Early retirement is your choice, and an important decision for you and your family,” Medtronic said in the materials.
“Whether you have thought about retiring soon or didn’t think you could, the program may help you reconsider your plans,” Medtronic said. “Early retirement can open the door for new opportunities for you to explore. It can mean you’ll finally have more time to travel, take up a new hobby, volunteer, or maybe just enjoy more time with your family and friends.”
Medtronic’s fiscal 2023 outlook
“Given our third quarter performance, we are raising our full-year outlook and expect our momentum to continue in the fourth quarter,“ Medtronic CFO Karen Parkhill said in February while announcing better-than-expected financial results. “As we look ahead, we are focused on delivering durable topline growth and significant expense reductions as we navigate through macro headwinds from foreign currency and inflation. And, we are committed to continued investment in our growth drivers to ensure long-term value creation.”
At the time, Medtronic said it expected organic sales growth of 4.5% to 5% for fiscal 2023. The company anticipated adjusted profits of $5.28 to $5.30 per share for the year
“I’m very encouraged by the rebound in our revenue growth, despite procedure volumes remaining a little softer in a few markets and volume-based procurement in China,” Martha said at the time. “We are confident in delivering durable revenue growth over the coming quarters as recent revenue headwinds continue to dissipate, and we drive execution across our businesses.”