Bankrolls not the only barrier to buyouts

Published on Wednesday, Mar 14, 2007

EMPLOYERS are trying to make the best of a bad situation by offering buyout packages to their employees.
So, instead of being shown the door, employees now have the freedom to accept the buyout offer and leave or stay on and be asked to leave eventually.
Though an expensive way to cajole employees to retire, it can successfully avert the negative effects of mass lay-offs.
Moreover, it is mutually beneficiary as employees can quit with a handsome amount in their kitty instead of meekly exiting with a pink slip.
The trend is widespread, as several companies are restructuring their workforce with buyouts.
For example, GM offered buyouts and early retirement packages ranging from $35,000 to $140,000 to $ 1,13,000 to their hourly workers.
A US based telephone company offered buyouts to $ 1,52,000 employees.
Another auto major in the US offered buyouts of $35,000 to $100,000 under a programme that will eliminate 30,000 jobs by 2012.
A buyout is a simple and easy staff reduction strategy. However, it may become a formality unless there are sufficient takers preceding an imminent lay off.
Hence, it calls for efficient planning and implementation.
Crafting a strategy
Employers must make a generous offer to persuade employees to leave. A typical package could include:

• Cash payment - a bankroll of payout money
• Benefits - health insurance, unemployment compensation, access to pension services
• Severance pay - anywhere between 12 to 18 months of the current salary
• Outplacement services - career advice and assistance in finding another job.

The terms should be consistent with the precedent, company culture, employee level, age, skills, years of service and retirement eligibility.
Buyout programmes cannot be concluded in a hurry. The company should allow 2-6 months time for employees to consider the offer.
The right ones
A buyout plan can be successful, provided there are takers. Offering a buyout across the board may be imprudent because then the most valuable workers may be the only ones to leave.
As an attorney elucidates, "There is a huge risk of brain drain. The companies may end up with a workforce that is less productive than it was before". Or, those employees who are already planning to leave or retire may jump at the chance and leave.
Instead of a universal offer, companies should prioritise the buyout to achieve specific organisational goals.
Identifying and targeting specific positions, occupations and grade levels will help eliminate surplus employees in the right areas.
For example, Ericsson offered buyouts to 1000 employees between 35 and 50 to correct its unbalanced age structure.
Also, companies should exclude `hard to replace' and critical employees from such buyout offers.
The modalities
Managements must offer a buyout after in depth thought. According to Ethan Kra, a Mercer Human Resources Consulting chief actuary for retirement, "Figure out what it will cost you to get an individual to walk out the door.
Then consider the flip side. What is it going to cost you to keep the person? How much do you save by not paying him, against what you would gain by having him around?
If you lose no revenue by losing this employee, then everything you save is a benefit".
Aftermath
As people accept the buyout and leave, the morale and productivity of those `left behind' will certainly take a beating.
To remain buoyant, companies have to take steps to rebuild efficiency and repair relationships.
They also have to inspire creativity and innovation to make up for the potential skills gap.
Implemented prudently, buyouts can serve as an attractive alternative to the dreaded lay offs.

PAYAL CHANANIA