What to know before taking an employee buyout

Getting paid to voluntarily quit a job? It might sound like a particularly good deal in a time when the prospect of layoffs looms large across industries.

Buyouts are severance packages designed to incentivize employees to exit an organization. Sometimes they are a warning of future layoffs and other times, they are just a cost-cutting strategy for companies to lower their wage expenses.

For example, after cutting 500 salaried positions in February, General Motors offered voluntary employee buyouts to the majority of its 58,000 US white-collar workers. So far, about 5,000 have opted into the “Voluntary Separation Program”, or VSP, the company’s CFO Paul Jacobson announced on Tuesday.

VSP is the opt-in kind of buyout — it doesn’t necessarily mean that the tens of thousands of GM employees who passed will be automatically let go. But given the gloomy backdrop of the current job landscape, exiting a company by choice (rather than force) might be the preference of some.

Buyouts can also be less voluntary and more “a precursor to layoffs,” says Lindsay Witcher, a senior executive at career transitions firm Randstad RiseSmart. In these cases, a buyout is a severance contract where the company offers certain benefits like compensation in exchange for the employee accepting certain terms like non-disclosure or non-compete agreements. Regardless, these types of buyouts are less voluntary and usually mean that the employee’s position is about to be eliminated.

Both types of buyouts come with complications.

Buyouts “can be a very painful, emotional thing,” says Andres Lares, managing partner at consulting firm Shapiro Negotiations Institute. “There is a significant amount of complexity based on what the market perceives you as and also how you take it.”

Here’s what to know before you take a buyout:

You can (and should) take your time

It is almost never a good idea to either accept or reject a buyout on the spot.

Once a buyout is offered, companies usually provide between 14 and 21 days for employees to review the agreement, according to Lindsay Greene, a partner at DSK Law, which is a provider in the online legal network LegalShield. After years of guiding buyout negotiations and structuring, Greene urges people to take their time.

“I think there’s always something to have a discussion about or at least clarify,” Greene tells CNBC Make It. Employees should review the terms of the agreement in depth either with legal counsel, a financial advisor or on their own. Whether the buyout is a warning sign of layoffs or purely a voluntary option, a second opinion can provide necessary clarity.

Taking time to think about the offer is also a matter of avoiding impulse, emotional decisions, especially if the buyout is offered in the context that your role is about to be eliminated. On-the-spot agreements might lead a contract to be deemed illegitimate if it is perceived to have been signed under duress, says Greene.

“Even just, ‘Okay, can I get 10 minutes outside the room for a minute or call my spouse?’ There’s just something to be said for literally stepping out of the room you’re in,” Lares says.

Prepare earlier than you think you need to

Lares says that at the first warning sign of potential layoffs, workers should start planning their ideal buyout offer. To guide that preparation, he recommends the mnemonic device, PAID

  • Precedence: Employees should do research on what their company and other companies in their area have done for past buyouts or layoff rounds. Many buyout packages start with four weeks of compensation plus an additional week for every year worked, but that varies, says Greene.
  • Alternatives: Employees should consider both their options and the company’s. For example, if you are the only project manager on a certain team, it might be in the best interest of the business for you to negotiate a later departure date.
  • Interests: What do you and your company care about? Employees should consider how their priorities overlap to guide the most effective negotiation strategy.
  • Deadlines: Employees should have a clear sense of the timeline of when they need to respond and start their research right away.

Negotiate outside of the box

Negotiating a better buyout may not just mean getting more money.

“There’s easily 30 different things that you can think about,” says Lares. “I think the first step is to figure out, ‘What’s my priority here?'”

For example, someone may want their buyout to have a weekly payment structure rather than a lump sum. Or they may want to receive compensation for accrued vacation days. Some may negotiate to change the terms of their noncompete agreement. Others may try to push back their departure date and secure a more gradual phasing out process.

Employees should also clarify the terms of their health insurance, retirement funds, and what job-hunting support the company would provide, such as reference letters or connections to a recruitment firm.

Keep it in perspective

Large-scale buyouts and layoffs are rarely a reflection of an employee’s work.

“It’s often decisions that are market-driven,” says Lares. “It isn’t personal. It doesn’t mean you’re not valued or valuable.”

Currently, staff shrinkage is widespread, responding to a tough economic environment. Plus, nowadays, accepting a buyout has become more “open and accepted,” according to Witcher from Randstad RiseSmart.

She says, “What previously was something people tried to hide and avoid talking about has almost become a commonplace and for some, a badge of honor. Just look at Twitter staff who’ve been inspired to setup their own businesses following an exit, weaving the exit into their stories.”

check out:

What to know about severance pay, insurance and benefits if you’re laid off from your job

Half of the employers are planning layoffs—here’s how to negotiate your exit if it happens to you

Is the job market really getting worse? 3 recent job-seekers weigh in

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