(FORTUNE Magazine) – America is no place to age gracefully. Of course, basketball players, dancers, and fashion models are finished young; mathematicians and chess players peak early too. So do construction workers and coal miners. Once you’re 55, it’s almost impossible to find a job in business. But a new trend is emerging: In corporate America, 40 is starting to look and feel old.
Since the early 1980s big companies have been getting rid of people. For a long time, though, seniority mattered. Hierarchy was respected too. If people had to be fired, the younger, junior people were usually the first to go. That’s no longer true. The working world has changed. It has become faster and more efficient and, for many people, crueler. The unemployment rate hovers at 30-year lows; even so, companies announced the elimination of some 600,000 U.S. jobs last year, according to Challenger Gray & Christmas, an outplacement firm that tracks such depressing data. There’s no way to tell how many of those people are over 40, but this much is sure: Companies today have less and less tolerance for people they believe are earning more than their output warrants. Such intolerance, or pragmatism, hits older workers hardest. The older an employee, the more likely it is he can be replaced by someone younger who earns half as much. “For my salary the company could hire two twentysomethings,” says a 41-year-old we spoke to. “I’m good at what I do. But am I better than two people? Even I know that’s not true.” Today, for many people, the longer you’ve been at one company, the more disposable you are.
Here’s a sign of the times: At Westech Career Expos, the nation’s biggest technology-related job fairs, the registration form asks attendees to indicate their “professional minority status.” One option is “Over 40.” (“Until I filled out that form, I never knew I was a minority,” remarked a 43-year-old white male attendee at a Westech expo.)
Perhaps technology is to blame. Maybe in this “new” economy, the old ways of doing business are indeed anachronistic–if the economy is new, who needs experience? Whatever the reason, in America today the skills that come with age and experience appear to count for less and less. It’s hard to demonstrate with numbers, but a lot of people over 40 sense it: Youth, with its native optimism, is what companies want now. “The bar is lowering on what is considered old,” says David Opton, executive director of Exec-U-Net, a network of 5,000 executives looking for leads on new jobs. “I often tell people who are between 40 and 45 and thinking of getting a new job to hurry, because the door closes at 45.”
In some industries the door closes earlier. The half-life of computer engineers, for example, is especially short, and getting shorter. “It used to be that when you talked about age challenges in employment, it was people age 50, 55, or above. Now, well, I’ve had people in their late 30s tell me they’ve had people look at them and say, ‘Wow, you’re kind of old for a programming job, aren’t you?’ ” says Paul Kostek, president of the Institute of Electrical and Electronic Engineers-USA.
That so many workers are over 40 compounds the problem. In just four years, for the first time ever, there will be more workers over 40 than there are workers under 40 (see chart). All those people–the 78 million baby-boomers–are competing for a limited number of top jobs. For those who have made it (status, money, fan mail, a title, a corner office), there’s no problem; but for the millions who are just decent, everyday performers, it’s another story. These people are squeezed: They can’t rise to the top (there’s no room), and right behind, ready to overtake them, is another generation. In years gone by, executives in this position spoke of reaching a plateau–if their path no longer led upward, at least they were in a stable, safe place. Now the plateau is a narrow ledge. Suddenly, at an age when they expected to be at the peak of their careers, growing numbers of fortysomethings are slipping backward.
Debbie Brown is a software engineer who recently lost her job after 14 years at Northrop Grumman. Since last June, when Brown first knew she’d lose her job, she has sent out about 300 resumes. Her yield so far: four phone interviews, one in-person interview, and not a single job offer. Brown is 44. She earned a master’s degree in software engineering from the University of California at Irvine in 1983 and has 23 years of industry experience. According to headhunters, however, she’s obsolete–not because she’s worked in the defense business (although that probably doesn’t help), but largely because she moved into management in an era when fortysomething middle managers are a dime a dozen. As for her technical skills, well, people half her age are better qualified. To get a job offer, she must be prepared to cut her $88,500 salary in half, headhunters advise. Either that or go back to school. “I came to Northrop thinking that I’d retire here,” she says. “And now here I am, at 44, out of work and useless.”
It’s not only high-tech firms that are slamming the door on people over 40. In older industries, too, as the lives of products get shorter and as the speed of change gets faster, it can be awfully hard to keep up unless you have the stamina of a 25-year-old. “Just as the product life cycle is shortening, so too is the career cycle of the average employee,” wrote two organizational psychologists, Douglas Hall and Philip Mirvis, in a 1994 essay titled “The New Workplace and Older Workers.”
Last year, when management consulting firm Watson Wyatt Worldwide asked 773 CEOs at what age they felt people’s productivity peaked, the average response was: 43.
There are advantages to age. Older employees have more experience than younger workers; they also have better judgment, have a greater commitment to quality, are more likely to show up on time, and are less likely to quit–that’s what a recent study commissioned by the American Association of Retired Persons found. Younger workers, by contrast (in this case defined as under 50), were found to be more flexible, more adaptable, more accepting of new technology, and better at learning new skills. It may seem that there are as many advantages in hiring older workers as in hiring younger ones. But as the AARP study discovered, increasingly what matters to companies is potential, not experience; street smarts, not wisdom. “The traits most commonly desired for the new world of work are flexibility, acceptance of change, and the ability to solve problems independently–performance attributes on which managers generally did not rate older workers highly,” notes the AARP study. “The message is consistent: Managers generally view older workers as less suitable for the future work environment than other segments of the work force.”
To discover, after years of being promoted, that all of a sudden you are “less suitable” for your job than people younger than you is not easy. On Jan. 6, 1998, FedEx delivered letters to the homes of 389 Gerber Products salespeople telling them they were out of work. Of those 389 employees, nearly 70% were over 40. One of them was Tom Johnson. He had been selling Gerber baby food for 27 years; he started with the company when he was 21. Shouldn’t he have known he was vulnerable? “Right up until D-day, I was convinced I wouldn’t be hit, what with me calling on national accounts and all,” Johnson says.
It’s human nature that causes us to be blind-sided: No matter how often we hear stories of corporate ruthlessness, of 45-year-olds being replaced by 28-year-olds, we believe it won’t happen to us. Sitting in his living room in Mesquite, Texas, in his La-Z-Boy, Johnson opened up that FedEx letter and felt sick. “I sat in my chair and read it eight times and couldn’t believe it, I just couldn’t believe it. It was like someone grabbed me and hit me as hard as they could right in the stomach. I thought, ‘God, all I’ve done and all I’ve worked, and it doesn’t mean a thing.’ ” His unemployment insurance checks, at $476 every two weeks, ran out months ago. When we last spoke to him, he had sent out about 400 resumes, and still he hadn’t found a job. If truth be told, his chance of finding anything that comes close to paying what he earned at Gerber is probably zero.
To compete in an industry that’s cutthroat, Gerber, which is owned by the Swiss pharmaceuticals giant Novartis, decided to replace its in-house sales force with outside grocery brokers, big, anonymous, national sales firms. But Johnson thinks there’s more to it. “They didn’t just put us out to pasture, they put a bullet through us,” agrees one of his former colleagues, Bob Butcher. Johnson and Butcher have filed an age-discrimination lawsuit against Gerber.
For many people over 40, it’s getting harder to hold on to jobs that let them maintain their standard of living. Mike Bellick is 46. Until recently he was among the 2.3% of working-age Americans who earn over $100,000 a year: As the head of sales and marketing for a small Kansas City firm, he pulled in $130,000. All of a sudden, this past September, Bellick was let go and replaced by a 28-year-old who, presumably, earns far less than Bellick did (“I became the big target,” he explains. “I was the guy making all the money”). True, Bellick didn’t have too much trouble finding a new job; he has 20 years’ experience in sales and marketing. But today, once you’re over 40, it’s one thing to find work and another to find a job that pays enough to support the lifestyle to which you have become accustomed.
When we spoke to Bellick in early December, he had had two job offers. One was for about the same salary he had earned before, but in his view it was a lower-level position, and worse, it was in San Jose, Calif., where the cost of living is far, far higher than in Kansas. The other position was in Kansas City, his hometown, but the salary was some 40% less than that of his old job. Meanwhile, and typically for someone his age, Bellick’s living expenses have never been higher: His children’s college expenses will run him $17,000 this year; then there’s the mortgage on his 4,000-square-foot home and the cost of maintaining three cars.
It’s hard to feel sorry for someone earning $75,000 a year in Kansas City. But the point is, Bellick’s gone about as far as he can go. “My salary has not grown in three years, and now it’s going down,” he says. “Should I go out and retrain myself? Perhaps. But how can I? I am supporting two kids in school. I support my wife. You get caught between a rock and a hard place. You say, ‘Man, I’ve got to work, and $75,000 a year is better than going to work at a grocery store.'”
No longer is it unusual for a fortysomething like Bellick to be replaced by a 28-year-old. “The market is so fast moving that for some reason it’s reduced the premium these [older] guys have,” notes a New Yorker who runs a hedge fund. Callously, but realistically, he explains his preference for younger employees this way (and for obvious reasons he won’t let his name be used): “The way I look at it, for $40,000 or $50,000, I can get a smart, raw kid right out of undergrad who’s going to work seven days a week for me for the next two years. I’ll train him the way I want him, he’ll grow with me, and I’ll pay him long-term options so I own him, for lack of a better word. He’ll do exactly what I want–and if he doesn’t, I’ll fire him…. The alternative is to pay twice as much for some 40-year-old who does half the amount of work, has been trained improperly, and doesn’t listen to what I say.”
It’s a sentiment a lot of baby-boomers talk about, at least behind closed doors. “People my age are very insecure about the younger work force; at this health club I go to we talk about it, we worry about it,” confessed a 44-year-old executive we spoke to. What unnerves these fortysomethings is that in a world increasingly dominated by information technology, people in their 20s and early 30s (Generation X) are more technically savvy than most baby-boomers. Even more, many Gen Xers work 60 or 70 hours a week, mostly because their job is their whole life. But so what? From the perspective of an employer, such single-mindedness, such devotion to the company, makes Gen Xers all the more valuable. It also makes for unflattering comparisons to the fortysomething employee who leaves the office right at 6 P.M. to pick up the children from day care. As one highly placed human resources manager put it, “The attitude is, Why not hire someone who’s young and idealistic and will work 80 hours a week?”
Lately it is becoming acceptable for this attitude to be explicit. Giving young people positions of power is a defined strategy at Consolidated Graphics, a $430 million firm that owns 50 commercial printing companies. Last year the company was ranked No. 87 on FORTUNE’s list of fastest-growing companies, and CEO Joe Davis believes the firm’s success is largely due to his young, driven executives. “These 20-year-olds believe they can do anything, and that kind of attitude is uplifting and very successful in a business that’s been chugging along the same way for 15 years,” Davis, 55, explains. “They introduce fresh ideas. Suddenly the energy level at these plants changes. At 6 P.M. you look around, and they’re the only people left at the office.”
In an economy where the rules seem to shift every day, it’s the risk takers, the people who believe they can do anything, who are being rewarded. And after all, who’s more likely to take risks–a 46-year-old with a mortgage and two kids in college, or a 30-year-old with nothing to lose? (Freedom may be just another word for not having a mortgage.) Robert Michlewicz is the president of one of Consolidated Graphics’ biggest plants, Houston-based Chas. P. Young Co., with sales of $20 million. He’s 30, oversees a staff of 150 people, and works 70 hours a week. When he started with the company, just out of Texas A&M, Michlewicz wouldn’t be constrained by the printing industry’s traditional ways of doing business. “When I got into sales here, there was this rule of thumb that once you sold $1 million worth of printing, you were an established, veteran salesperson,” he explains. “I did $500,000 in my first year, $1.5 million in my second year, and $6.1 million in 1995…. I had no preconceived notions. That million-dollar threshold didn’t mean anything to me.”
The harder Gen Xers work, the more they tend to resent all those 44-year-olds who put in half as many hours and earn more money. “A large percentage [of us] have decided not to buy into a corporate system clogged with entrenched boomers who won’t make way for people who are more efficient and have better ideas,” writes 28-year-old “Delsyn” in an Internet posting on the Boomer Board chat room. Younger generations may have always felt thus; what’s different now is that Delsyn, or someone like her, may be your next boss.
“You have to do more for young people because they are likely to turn over more quickly than older workers. Consequently, a lot of companies are putting young people on the fast track, so you have 28-year-olds running entire departments that 20 years ago were run by 55-year-olds,” explains Joe Gibbons, a human resources consultant at William M. Mercer. “That’s a big change–it’s a sea change.”
What this change has done above all is upset the expected career paths of boomers. Increasingly, fortysomethings who have followed a good, steady career path find themselves competing with thirtysomethings on the fast track. “Imagine you’re looking to hire someone, and you’ve got this 32-year-old fast-tracker and a normal 42-year-old manager in the same position,” says Neal Lenarsky, who runs his own career-management firm, Strategic Transitions, based in Woodland Hills, Calif. “It makes you wonder. You start to say, ‘Why has this 42-year-old not made it to the next level?’ ” The next level! Suddenly, that good, steady career path looks dangerous, full of thorns and briars.
At the very top levels of corporate America, among the chief executive officers of the FORTUNE 500, youth is still rare: The average FORTUNE 500 CEO is 56. Still, these CEOs are getting younger. Back in 1980, 69% of FORTUNE 500 CEOs were over 55; in 1998 the figure had dropped to 61%. Meanwhile, the number of CEOs in their 30s and 40s increased by 17%.
If the very top people are getting younger, then presumably those just below the top tier–people at the senior vice president level, say–are younger still. Why does this matter? Because, it is said, people hire people who look like them, or who are like them. Women and minorities have long complained that such partisanship is one reason they are shut out of traditional, white, male-dominated companies. If this is so, consider what it means to anyone over 40 that, more and more, the people doing the hiring are young. The very last thing a 31-year-old manager wants to feel is that he’s hiring his uncle, or… his mother. One senior executive says that when he was interviewing for the CFO job at a fast-growing high-tech company last year, he felt self-conscious about his age for the first time; he was 37. “I expected, in my full day of interviews, to be talking to some silver-hairs eventually, but they just didn’t exist,” he says. “These kids, people age 26 and 27, were interviewing me. I wasn’t intimidated by their youth, but I did feel old.”
Anyone who hasn’t been job hunting in the past five years is in for a shock, so quickly have these changes occurred. Bob, a 45-year-old senior vice president at a national insurance company, has been looking for a new position for about a year. (Because he’s job hunting, he doesn’t want his full name used.) After a long and successful career at his firm, he presumed that finding a more fulfilling job in this buoyant labor market would be simple. He was wrong. “I’ve been with this company 16 years, and I always looked at that as a good thing, a sign of my stability, but at one [job] interview they held that against me. They said, ‘You just haven’t had enough diversity of experiences and ideas,’ and I thought to myself, ‘That’s really not what this is about; this is about me being 45 years old.’ At another interview I met with a younger management group, in their 30s and 40s. They asked me, ‘What are your normal work hours? What do you do on the weekends?’ I said, ‘Oh, I like to watch football,’ and one of them replied, ‘Oh, yeah, I’m a couch potato too.’ I felt like they were trying to establish a pattern or a lifestyle for somebody who’s older.”
As the onset of “old age” occurs earlier and earlier in corporate America, it is no surprise that more fortysomethings are filing age-discrimination lawsuits. In a study of all the age-bias suits filed in federal courts in 1996, Howard Eglit, a law professor at Chicago-Kent College of Law, found that 26% were brought by plaintiffs in their 40s. That’s up from 18% in an earlier study that looked at age-discrimination suits filed between 1968 and 1986.
Sandra McHugh was 42 when she was fired by her employer, an Arizona firm called Impra that sells medical devices. She sued. In court Impra claimed McHugh was fired for not meeting her sales quota. Presenting evidence that younger sales people at the firm were not fired for failing to meet their quotas, McHugh’s lawyer argued that Impra had engaged in age discrimination. Her lawyer also noted that once, at a sales award meeting, back when McHugh was surpassing her quotas, her boss had presented her with the firm’s President’s Award, saying, “It’s nice to see that someone over 40 can do something.” Last June a Florida jury awarded McHugh $1.1 million, plus legal fees. (Under the Florida Civil Rights Act of 1992, those damages were recently capped at $265,000. Impra is appealing.)
Most companies looking to dump older employees don’t leave traces. Richard Posner, chief judge of the U.S. Court of Appeals for the Seventh Circuit and author of Aging and Old Age (University of Chicago Press, 1995), explains why: “Within companies [the Age Discrimination in Employment Act] has forced a vocabulary purge–we know now we can’t say, ‘We need new blood,’ but we can’t be prevented from thinking it. If you believe you have too many old people, you can simply offer them early retirement. And it’s said that if you want to fire an older person, you just fire a disposable younger person along with him in order to avoid a lawsuit.”
One reason age-bias suits are hard to win is that older employees are indeed different from younger ones. For one thing, they make more money. The implicit wage contract is that employees are often underpaid at the beginning of their careers, then well paid in their 30s and 40s, and usually overpaid as they hit their 50s. It has long been understood that late in their careers, as long as they perform satisfactorily, employees continue to receive annual raises and better perks–this even after their productivity has peaked or perhaps declined. Today, however, this social contract has made the overpaid older employee a walking target. “The economy is now so dynamic that older people are going to be at a disadvantage unless they have extraordinary skills that compensate for age,” says Posner.
Older employees don’t just earn more. Granting more vacation time costs money. The costs of medical benefits and insurance, too, rise with age. And the older an employee, and the longer he’s been with the firm, the more expensive it becomes to support his pension plan. If length of work experience really counted for something, these extra costs wouldn’t be an issue; but several studies have shown that differences in job performance between someone with 20 years’ experience and someone with just five years are often negligible. That is to say that a 28-year-old with six years on the job may perform as well as a 48-year-old with 26 years on the job. The 28-year-old, however, earns $45,000, while the 48-year-old makes $120,000 (assuming a 5% raise every year).
These points were raised in an age-discrimination lawsuit filed against Ernst & Young. During an 18-month period after the 1989 merger of Arthur Young and Ernst & Whinney, 99 partners over 40 were fired, while 112 under 40 were hired. One of those fired partners was LaRue Simpson; he was then 46 and making $196,000 a year. In court Simpson’s lawyer pointed out that E&Y saved $5.5 million a year in salaries alone by replacing older partners with younger ones. She argued that E&Y fired Simpson because he was approaching the age when his retirement benefits would be vested. Simpson won $3.7 million ($5.2 million after interest and legal fees); the court ruled that the firm fired older partners to reduce its unfunded pension liability.
Suing for age bias is expensive, emotionally exhausting, and rarely successful (see box). It took six years for Simpson’s case to wind its way through the courts. Through it all, he endured round after round of public humiliation: The defense tried to prove he was a bungling, incompetent accountant who was unable to attract big clients and thwarted in his ambitions to become a managing partner. How hard were those six years? “Let me put it this way,” Simpson says. “In 1982 I was diagnosed with a brain tumor and I had to wait six months for surgery before I could be sure that it was benign. Relative to my ordeal with Ernst & Young, that brain tumor was a piece of cake.”
If companies discard older workers because they’re earning more than they deserve, then perhaps the solution is to change the way people are being paid: Pay them what they’re worth. It’s self-evident, but it’s rarely the way companies compensate people. “The solution is to develop compensation plans that pay for ideas, not tenure; that pay for contribution, not hierarchy,” declares George Bailey, who until recently was head of Watson Wyatt’s human-capital group.
Implementing performance-based compensation plans isn’t easy. The key is figuring out how to value the performance of every employee (“If you can’t find a way to measure [a job’s value], you can probably eliminate it,” declares Bailey). How many new ideas did she think up this year? How much money did she save? What did she do to help meet our goals? Did she accomplish the goals we set for her? It’s a lot of work, but it beats rewarding people just because they’ve been with the firm for a long time.
A pure performance-based compensation plan means that an average employee may have to assume that at some point, probably in his mid-40s, maybe sooner, maybe later, he will face a pay cut. And rather than receive four weeks’ vacation, he may now receive just three. Sounds harsh. But not if the alternative is being fired, laid off, offered “early retirement,” or downsized because a 27-year-old has replaced you.
Here and there, pay is already largely performance-driven. But in most of corporate America, the incentives built into salary and benefits plans are at odds with a firm’s goals. Consider the traditional pension plans offered by most FORTUNE 500 companies: Relics from the days of corporate paternalism, they’re designed to reward people, especially unproductive people, for sticking around forever (see “The Richest Day of Your Life,” Aug. 17, 1998, at fortune.com archive). Take an average manager earning $100,000 who retires at 65. If he stays with one company his entire career, he’ll receive as pension $60,000 a year, according to calculations made for us by William M. Mercer. If, instead, he changes jobs just once in his career, he receives only $41,307 a year after retirement. If he’s a modern job hopper, working for a new company every five years, he winds up with only $29,725. This anomaly explains why a growing number of companies–among them AT&T, Empire Blue Cross Blue Shield, and Owens Corning–have dumped the traditional pension plan in favor of a so-called cash-balance plan that neither rewards long-timers nor penalizes job hoppers. Rather than have a pension based on length of service, most cash-balance plans grant everyone the same annual credit (between 4% and 8% of salary) plus interest toward an eventual pension, and if an employee leaves, he typically takes his “cash balance” with him. “These new plans pay people for what they’re bringing to the firm today, not for what they brought to the firm yesterday,” explains Ethan Kra, chief actuary at William M. Mercer. “Basically, they’re designed to take away the incentive to stay a long time.”
Taking a cut in salary and benefits isn’t the only way to remain competitive. Dean Keith Simonton, a psychologist at the University of California at Davis, argues that many signs of age that employers complain about–less productivity, less creativity, less enthusiasm–are in fact signs of boredom. “What I have found is that there is a trajectory in a career: It rises, rises, then peaks and falls. Basically, what happens is that you get everything there is to know about a job down cold, and then you run out of challenges and eventually reach a point where everything becomes a little too easy,” he explains. “That’s not a function of your chronological age; it’s a function of your career age.” The solution, he advises, is to change jobs, switch disciplines, get on another path before boredom sets in and before you become the sort of employee that companies want to eliminate. “If you start a new career, you reset the clock,” Simonton says.
Don Naab reset his clock that way. About two years ago, as an executive at Kidde International, a $1.1 billion fire protection company, Naab looked around and realized that too many senior executives didn’t have enough to do and, moreover, that he was one of them. He had just turned 44. Instead of waiting to see how things would turn out, he decided to start over. Naab left his job and started searching. For 18 months he met with headhunters, called on former colleagues and business acquaintances, and interviewed with 70 companies, more or less. To cover his family’s living expenses, he and his wife sold their home in Eden Prairie, Minn., invested the money, and lived off the income.
Last June, Naab was named president and chief operating officer of Pacific Research & Engineering, a $12 million public company in Carlsbad, Calif., that makes equipment for radio stations, such as mixers, cabinets, and consoles. He took a pay cut, but what mattered to him was finding a job that would keep him young and curious. “I’m as driven today as I was in the 1970s when I was in my 20s and 30s,” he says. “If I have to put in a 15-hour day, I’m not burned out at the end of it. And I actually like getting up in the morning knowing that I have to deal with problems at work.”
Question: When will older workers get some respect? Answer: when they’re needed. Consider this: By 2003, more than half the nation’s workers will be 40 and over. Who will replace them? Generation X (born between 1965 and 1977) numbers only 45 million; Generation Y (the echo boomers) is huge, but it won’t be noticeable in the work force for another decade or so. The bottom line: At some point–probably around 2011, when boomers start turning 65–companies will become desperate for workers, even older workers, according to the Hudson Institute’s Richard Judy, a co-author of Workforce 2020.