Evaluating Buy-Out Packages
Should you accept your employer’s buyout offer?
Financial and emotional issues can be difficult to
Your employer has announced it wants to eliminate several hundred jobs by offering buyouts, also known
as early retirement packages, to a group of employees. That group includes you. You had no intention of
leaving – you like your job, you’re paid well, your benefits are good – but your employer considers you
expendable. To quote a famous rock anthem – should you stay or should you go?
Evaluating the financial implications of a buyout package can be difficult enough if you’re more than
happy to go. It gets complicated on the emotional side when you intended to be loyal but now see that
loyalty as betrayed. So consider first the security of your job if you decide to stay. Will it be eliminated
later with a less attractive severance package or none at all? And if you stay and the job stays, how will
you feel about working for an employer that gave you the highway option?
Your age and life stage will greatly impact your decision. You may be young enough that retirement now
isn’t an option, so the severance will be your paycheck while you find another job. Or you may have young
children and decide severance will provide income while you stay at home for a few years. If you were
looking at retirement within a few years anyway, this may give you the opportunity to start early.
Of course, you’ll need to evaluate the financial pros and cons of accepting or
rejecting the offer. That means more than just the bottom line cash, which
companies usually calculate based on seniority and years of service. Consider
bonuses, stock options, paid time off and insurance premium subsidies that you
will no longer receive. Consult a tax specialist about the impact of receiving a
lump sum or stretching it out over time – severance or early retirement pay is
considered taxable income.
You legally have 45 days to consider a buyout package, and most people wait
until the 11th hour. By signing a buy-out agreement, you forfeit your right to sue
your employer later on any employment and compensation-related issues, so
resolve those before time runs out.
Buyouts often occur after a merger when duplicate positions need to be
eliminated. Companies may offer a staying bonus to those who don’t jump ship to ensure they have
adequate staff to complete the transition. If you accept a staying bonus, you should still dust off your
resume and check your finances to make sure you can survive being terminated when the transition is
Take advantage of any extra services your employer may be offering to those who accept the buyout,
such as career counseling or placement services, even if you plan to retire, so you can walk away
assured you took advantage of every opportunity. Then meet with your financial advisor to determine how
your goals and objectives may change in light of the buyout. Even if you decide to stay, you may
determine a need for greater cash reserves or other financial plan revisions to prepare for moving to
another job if your employment future looks uncertain.
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