Tough Times Series: Negotiate Before Accepting Employer's Buyout Offer

When your employer offers you a buyout package to leave the company, it can come as a rude shock, a welcome opportunity, or anything in between. However you feel about receiving such an offer, take a step back from your emotions before you announce your decision.

First, consider two things about buyout packages:

Severance pay isn't required by law. In some large layoffs, state or federal law may require that an employer give a minimum "notification period" during which it must continue to pay your wages and benefits, even if you're asked to leave your job immediately. In contrast, a true severance package is strictly the employer's option.

Your employer is willing to pay for your cooperation. If you are offered a buyout rather than simply being laid-off or fired, the company is seeking your agreement not to file suit, publicly disparage the company, or compete with it ... or perhaps all three. So to receive the buyout, you'll be required to sign a contract called a severance agreement, employment separation agreement, or separation and release agreement, among other names. If you don't sign this contract, the company might withdraw the buyout package for good.

On the other hand, such contracts provide your employer valuable protection, especially if the employer is vulnerable to unlawful termination lawsuits. You may be able to use that as leverage to negotiate a better deal.

How much leverage do you have?

Here are some common events that trigger a buyout, and how each may affect your ability to work out a better deal. Even if the odds are slim, however, remember that any time you're offered a buyout in return for a severance agreement, it can't hurt to ask for more.

Mass layoff: This is a different animal than a single buyout offer. As one of many employees whose jobs are being eliminated, you probably won't get a different deal than others in the group. One advantage you have in this situation: These are rarely a surprise; you may have time to find another position inside or outside the company.

Precursor to a mass layoff: Foreseeing a mass layoff, a company may begin to look for opportunities to shed an employee here or there. If you're offered a buyout amidst signs of a looming layoff, consider that if you turn it down you soon may receive a one-size-fits-all severance package. Even if the mass-layoff package is no worse than the one you've already been offered, it almost certainly will offer fewer (or no) options.

Performance issues: If you have reason to believe your bosses aren't satisfied with your work, gather all the positive proof of your performance you can find: good annual reviews, a salary history showing raises and performance-related bonuses, awards, even "nice work" e-mails and letters you've gotten from co-workers, bosses, or customers.

Then take your case to the boss. Skip HR (human resources) and Legal in this situation--the supervisors and executives in your area probably will have more influence over improving your buyout package.

These may be difficult conversations. But if they reveal a weak-sounding case against you, your negotiating position may get stronger. You also could learn the truth about a flaw (real or perceived) in your performance that you never saw before. It may be something you can fix in your next job, or in this job if you decide not to take the buyout.

You're close to retirement: A logical choice for a company or department that wants to downsize is to offer early retirement packages. These can be attractive. You may be offered early access to pension, life or health insurance, 401(k), stock options, and other benefits tied to length of tenure and/or age.

You need to work with a qualified financial adviser to weigh early retirement offers. Decide first whether you need a package designed to get you safely to your Social Security and Medicare benefits, or a package that tides you over to another job.

You may be able to trade elements of the package to suit either scenario. For example, if you're close to age 65 and you have enough money accumulated, it may be worth less severance pay to get a better deal on pension and health insurance.

Discrimination: If you think you've been unfairly targeted based on factors such as your age, race, gender, disability, or harassment, don't quickly sign away your right to seek legal redress in exchange for a buyout package. If you can present evidence of discrimination, you may have a very strong negotiating position. For more information about this, see the U.S. Equal Employment Opportunity Commission Web site.

Consult an employment attorney in these matters, even if you don't choose to bring one directly into the negotiations.

Weigh the consequences

Once you've considered how likely it is that you can negotiate a better buyout, it's time to answer two key questions before you make your decision:

Can I afford the buyout?

If you're offered a buyout amidst signs of a looming layoff, consider that if you turn it down you soon may receive a one-size-fits-all severance package.

A qualified financial adviser can help you work out how much money you'll need, taking inflation into account, to retire comfortably or to protect you and your family until you get another job. This also is the time to weigh the tax consequences of any options your buyout package allows, such as lump-sum vs. paycheck continuation severance payments.

What are my prospects if I stay?

Is the company on solid financial footing? If you're not sure, look closely at the company's financials and any industry media coverage you can find.

If your company looks solid, it may be a better idea to wait. The next buyout offer may be more generous. But ask yourself if you're prepared to take a lesser role. Employees who reject buyout offers can find themselves passed over for good assignments, raises, and promotions.

Even if you turn down the buyout, consider the offer a warning shot across the bow and get your financial affairs in order.

You may want to move some investments from long-term, tax-sheltered programs into something you can use for emergency money without taking a big tax hit. Again, work with a qualified financial representative and study your options.

Published October 15, 2008