Seven tips for evaluating a buyout offer
Many American companies, most recently General Motors and Delphi, are using buyouts to cut the cost of wages and benefits by reducing their payrolls. If you're offered a buyout, here are several factors to weigh before you sign on the dotted line.
Consider the terms. Find out whether you will be allowed to stay on at the company if you turn down the buyout, and take a little time to think about the offer. Evaluate the company's financial health. Is it likely to be in business in the future to pay your salary and perhaps help finance your retirement? Employers are not required to offer you a buyout, notes Janet Hill, president of the National Employment Lawyers Association. "Most companies don't have severance plans, and in most cases there is not a duty to pay severance pay," she says. So, if you turn down a buyout offer, it might not be on the table again, and you could find yourself downsized later anyway. If you are over 40, under the Older Workers Benefit Protection Act, you must be given 21 days to consider the offer45 days if it's an across-the-board job cut.
Review what you're entitled to. Take stock of your retirement plan, vacation days, any stock options, and even expenses like travel that you have not yet been reimbursed for. You'll want to make sure you get whatever you're entitled to upfront. Then, determine what you need to avoid severe financial pain as you make the transition to a new job or career, says Alan Sklover, an employment attorney in New York and author of Fired, Downsized, or Laid Off.
Remember, it's all relative. Ask yourself: How much is the company offering relative to what I'm being asked to give up? Find out whether you have retirement benefits that will grow in value if you stay on the job or benefits that you will receive only if you stay. If you are being asked to give up a pension, calculate how much it would be worth spread out over 20 years. Retiree medical insurance can be worth a lot. According to Dallas Salisbury, president and CEO of the Employee Benefits Research Institute, a single person will need $151,000 to pay for retiree medical care between ages 65 and 80 (assuming 7 percent inflation in healthcare costs). "If you could be able to get those benefits at 55,then you're giving up even more," he says.
Follow the money. Nonmanagerial workers typically receive payment equal to one week's pay for each year they were employed by the company. Higher-paid people within the company may receive between two and four weeks' pay for each year they worked. Sometimes you can choose whether to receive a buyout payment as a lump sum or spread out over time. You may want to consult an accountant about how this income will affect your tax liability or your child's eligibility for college financial aid.
Think about a job search. Look into how easily you will be able to find another job in your area that offers you comparable income and benefits. If you can easily replace your current level of health, life insurance, and pension benefits, then a buyout is found money. However, if you were promised a defined-benefit pension plan and any new job promises only a 401(k), it becomes a much more difficult choice. Decide whether you and your family are willing to relocate, which can be difficult when a spouse works and the kids are in school. Your employer may offer to pay for job-search or job-retraining services.