Buyouts feel kinder than layoffs, until the best workers leave first
The people most confident they can find another job are the most likely to take the money, and investors often prefer layoffs anyway.
Marketplace · Spooked investors sink Big Tech stocksWhen a company needs fewer workers, asking for volunteers sounds kinder than picking names for layoffs. The problem is that the people most likely to volunteer are often the ones the company most wants to keep.
It works like this. A company offers a severance package, usually several weeks or months of pay plus benefits, to employees who agree to leave on their own. Microsoft recently offered departure packages to around 60,000 staffers, roughly one in four employees, partly to trim expenses and help pay for heavy spending on artificial intelligence. The entertainment company Skydance, which recently acquired Paramount and Warner Bros. Discovery, also announced voluntary departures earlier this month.
The appeal is control, or at least the feeling of it. Nita Chinzer, who teaches management at a Canadian university, says handling the process as a choice can soften the blow for both sides. The company can say it did not single anyone out, and workers can say they chose to go.
Chinzer knows the feeling firsthand. In the late 1990s, during the dot-com bubble, she worked for a large phone company that went through repeated rounds of voluntary departures. She kept raising her hand because she hoped to return to her studies, but she was not selected until her section, built for 160 people, was down to four.
That selection process points to the central risk. Anthony Nyberg, who teaches management at a university in South Carolina, says a buyout means giving up control over who leaves. Workers who are confident they can find another job are more likely to take the money, so top performers walk out first, especially if they expect more cuts later.
Turning to forced layoffs does not neatly avoid losing top performers. Investors often prefer them because the savings are immediate and easy to measure. But Nyberg said, "Layoffs are more likely to be followed by unintended turnover among your higher performers after the layoff."
That tradeoff helps explain why buyouts have become more popular in recent years. Chinzer says it suggests companies are looking six months to a year ahead and trying to prepare early for a rough patch or a big investment.
Questions people ask
Can a company stop a star employee from taking a buyout?
It can try to say no. She volunteered repeatedly and was turned down until her section was down to four people. That experience shows managers can be selective about who they let go. It also shows the tension: refusing a strong performer can leave that person unhappy.
What do workers usually get in a buyout package?
A typical package includes severance pay based on salary and years of service, plus continued health coverage for a set period and sometimes help finding a new job. Executives may also get accelerated stock or bonus payouts. Workers are usually asked to sign a release agreeing not to sue the company.
Why would investors prefer layoffs if buyouts seem more orderly?
Investors can quickly estimate the savings from a set number of eliminated jobs, which makes the financial benefit easier to model. Buyouts are less predictable because the company does not know in advance who will accept.