How do we encourage retirement for a "Peter Principle" employee?

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Not knowing more about your company and its track record in this kind of situation, how many more of these kinds of situations you may have to face in the coming months or years, or what kind of retirement program you have in place, I am at somewhat of a disadvantage in determining your best course of action.

However, as I see it, you should structure a bona fide job description for the job you need done. Carefully craft the qualifications necessary, including the level of proficiency with the technology that anyone must use effectively to do the job. Follow this by calculating measurable productivity and quality standards for a good worker doing the job using the technology required.

Meet with the employee and explain that this is what the business needs done (methodology/technology, amount, rate, accuracy, etc.). Tell her that unless she can meet the job requirements and productivity goals set, she cannot remain on board in her current capacity.

If she responds that she can meet the job requirements, give her a fair chance (minimum of 30 days) to prove that claim. There are inexpensive online skills tests that can measure her ability to use the technology required if you do not have a validated test of your own.

If she does well coming up to speed, great. Otherwise, offer her a separation agreement protecting your company from any kind of legal claim after the fact and a severance package (as consideration) to ease her on her way. You must make it about the job and not about her.

When you fill the job, be very careful to ascertain that the individual you hire meets every single qualification you have included in the job description.

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