Succession Plan: What It Means for Employers

What it means in practice

The Government Accountability Office describes leading organizations as using succession planning and management to identify, develop and select their people "to ensure an ongoing supply of successors who are the right people, with the right skills, at the right time for leadership and other key positions" (GAO-03-914, September 2003). The Office of Personnel Management (OPM) puts the reason plainly: some jobs are "the lifeblood of the organization and too critical to be left vacant or filled by any but the best qualified persons." A succession plan is narrower than workforce planning, which GAO describes as aligning the human capital program with mission goals and developing long-term strategies for acquiring, developing and retaining staff (GAO-04-39, December 2003). It draws on performance reviews and works alongside talent acquisition, which covers filling roles from outside.

Who must have one. Federal agencies must. The statute requires each agency head, in consultation with OPM, to establish "a comprehensive management succession program to provide training to employees to develop managers for the agency" (5 U.S.C. 4121). OPM's rules require that program to rest on the agency's workforce succession plans, to offer continuing learning such as details, mentoring, coaching and projects, and to be evaluated (5 CFR 412.201). Agencies must also ensure leadership continuity "by implementing and evaluating recruitment, development, and succession plans for leadership positions" and run a knowledge management process (5 CFR 250.204). No comparable federal mandate applies to private employers. Once a private plan is used to decide who is promoted, trained or moved, though, it falls under the anti-discrimination laws, which the EEOC says cover "every aspect of employment."

Key terms. OPM's Guide to the Strategic Leadership Succession Management Model (March 2009) defines bench strength as "the readiness of the internal talent pool to fill key leadership positions." Succession targets are descriptions of current and projected needs for key leadership groups at points in time, in numbers of positions, people to be developed and desired competencies. If too few people in the talent pool are prepared to meet those targets, the organization has succession gaps.

The six-step process. OPM's Succession Planning Process (September 2005) lays out these steps. (1) Link to strategic and workforce planning: identify the long-term direction and future requirements, using data already collected. (2) Analyze gaps: identify core and technical competencies, compare current supply with expected demand, and build a business plan on long-term talent needs rather than position replacement. (3) Identify talent pools, favoring pools of candidates over development of single positions: look across levels, early in careers and often, assess current employees with assessment instruments, use 360-degree feedback for development, and analyze outside sources of talent. (4) Develop strategies for recruitment, retention and development, such as planned job assignments, coaching and mentoring, action learning projects and shadowing. (5) Implement, including a communication plan, measures of success and links to performance management, pay, recognition and workforce planning. (6) Monitor and evaluate by tracking selections from talent pools, hearing leaders' feedback on internal hires.

What the research found. GAO's review of agencies in four countries found practices including active support of top leadership, links to strategic planning, identifying talent from multiple levels and early in careers, and emphasizing developmental assignments in addition to formal training (GAO-03-914).

Example. Projecting departures. OPM's guide says projected attrition should compare the number eligible to retire or otherwise expected to leave with a historical record of how many actually do, because not everyone retires once eligible. Its illustration: if 10 employees are eligible to retire in a given year and historically 50 percent of those eligible actually retire, projected attrition is 5 employees. The guide also uses a bench strength ratio, the number of ready candidates wanted per position: with 12 supervisory openings projected and a 2:1 ratio, the target is 24 candidates ready to step in.

Selection rules: Title VII and the Uniform Guidelines. Title VII makes it unlawful to discriminate because of race, color, religion, sex or national origin in admission to, or employment in, "any program established to provide apprenticeship or other training" (42 U.S.C. 2000e-2(d)). The Uniform Guidelines on Employee Selection Procedures apply to any selection procedure used as a basis for promotion, demotion or retention, and to selection for training or transfer when it leads to those decisions (29 CFR 1607.2). "Selection procedure" covers the full range of assessments, from tests and training programs through "informal or casual interviews" (29 CFR 1607.16). A procedure with adverse impact is considered discriminatory unless it has been validated or the Guidelines' other conditions are met (29 CFR 1607.3). The EEOC's guidance on tests used for promotion urges employers to validate them and look for equally effective alternatives.

Example. Checking a talent pool. As our own illustration of the four-fifths rule: an employer considers 20 men and 20 women for a leadership development program and selects 8 men (40 percent) and 4 women (20 percent). The women's rate is half the men's, below four-fifths, so the Guidelines would generally treat it as evidence of adverse impact (29 CFR 1607.4); see diversity. The Guidelines note that differences based on small numbers may not be statistically significant.

Selection rules: age. The ADEA makes it unlawful to discriminate against an individual 40 or older in any aspect of employment (29 CFR 1625.2), and the EEOC lists job assignments and promotions among them. When a practice uses age as a limiting criterion, the "reasonable factors other than age" defense is unavailable (29 CFR 1625.7(b)). A neutral criterion that falls harder on older workers must be justified as a reasonable factor other than age; relevant considerations include how accurately the employer defined and applied the factor, whether supervisors were trained, whether supervisors' subjective discretion was limited "particularly where the criteria that the supervisors were asked to evaluate are known to be subject to negative age-based stereotypes," and whether the employer checked the impact on older workers (29 CFR 1625.7(e)). Asking for age or date of birth in a promotion inquiry is not unlawful in itself but is closely scrutinized (29 CFR 1625.5).

Planning around retirement. A plan can anticipate retirements but cannot force them. No seniority system or benefit plan may require or permit involuntary retirement because of age, though a plan may let individuals elect early retirement at their own option (29 CFR 1625.9). The one exception allows compulsory retirement of an employee who is 65 or older, has held a bona fide executive or high policymaking position for the 2 years immediately before retirement, and is entitled to an immediate nonforfeitable annual retirement benefit of at least $44,000 from the employer's plans (29 U.S.C. 631(c)). The EEOC says it must be narrowly construed and does not apply to middle-management employees, "no matter how great their retirement income"; "immediate" means payment begins within 60 days of retirement (29 CFR 1625.12). Early retirement incentives that ask for a release of age claims are covered under offboarding.

Development and knowledge transfer. OPM's rules show what a structured program can contain. A Senior Executive Service candidate development program lasts 12 to 24 months and includes a development plan, at least 100 hours of interagency or multi-sector training, a developmental assignment of at least 180 consecutive days, and a mentor and a coach (5 CFR 412.302, amended June 25, 2026). Federal phased retirees must spend at least 20 percent of working hours mentoring, which need not be limited to the person expected to take over their duties (5 CFR 848.901). A new successor still needs onboarding into the role.

Owner succession in a small business. For an owner, succession can mean transferring the business itself. The SBA describes three ways to transfer ownership: an outright sale, a gradual sale paid over time, and a lease. It advises valuing the business first, using an income, market or assets approach, preparing a written sales agreement reviewed by an attorney, and notes that transferring a family business may trigger estate and gift tax obligations. One tax-qualified route is an employee stock ownership plan, which the IRS describes as a section 401(a) qualified defined contribution plan designed to invest primarily in qualifying employer securities; the IRS and the Department of Labor share jurisdiction over some ESOP features.

Key-person insurance. Some employers insure a key employee's life to fund a transition. For employer-owned life insurance, the tax-free death benefit is limited to premiums paid unless an exception applies and, before the policy is issued, the employee gets written notice of the plan to insure and the maximum face amount, consents in writing, and is told in writing that the employer will be a beneficiary (26 U.S.C. 101(j)). IRS Form 8925 reports the number of employees covered and the total coverage in force at year end.

When the business changes hands. Under the WARN Act, which applies to businesses with 100 or more employees under its counting rules, the seller must give notice of any plant closing or mass layoff up to and including the effective date of a sale, and the buyer is responsible after that (20 CFR 639.3 and 639.4). Under the FMLA, a successor in interest, judged on factors such as continuity of operations and workforce, must treat employment with the predecessor as continuous (29 CFR 825.107). See FMLA.

Where states differ. State fair employment laws can reach smaller employers and younger workers. Two examples from official state sources: the California Civil Rights Department says employers of five or more are covered by the Fair Employment and Housing Act, which protects age 40 and over and covers promoting employees and participation in training programs; New York's Human Rights Law covers "all employers within the state" and bars age discrimination in promotion against individuals 18 or older (N.Y. Executive Law 292(5) and 296(3-a)). Check your own state agency.

Recordkeeping. Employers covered by Title VII or the ADA must keep personnel records, including those on promotion, transfer and selection for training, for one year from the record or the action, whichever is later, and keep all relevant records once a charge is filed until it is finally resolved (29 CFR 1602.14). The ADEA rule requires 1 year for records on promotion, demotion, transfer and selection for training, and notices about promotions and training programs; payroll records showing each employee's date of birth, 3 years; and written seniority and merit systems for as long as they are in effect plus 1 year (29 CFR 1627.3). A charge must generally be filed within 180 calendar days, or 300 in many states; for age claims only a state law extends it (EEOC). Plan documents that set policy may also belong in the employee handbook.

Questions employers ask. Is a succession plan legally required? Not for private employers under federal law; federal agencies must have one (5 U.S.C. 4121). Can we groom a younger successor because they will stay longer? Using age as a limiting criterion removes the reasonable-factors defense (29 CFR 1625.7(b)). Can we make our CEO retire at 65? Only if every element of the executive exception is clearly met (29 CFR 1625.12). Most private employment is at-will, so a plan is not a promise of promotion unless the employer makes it one; see HR for who owns the process. Confirm specifics with the EEOC, your state agency or a qualified professional.

Why it matters and common mistakes

How Remindax helps

Related terms

See all terms in Performance & Talent Management or browse the full HR Glossary.