Las Vegas Business Press :: News : Cashing Out

Cashing Out

More businesses offering workers buyouts as way to stave off layoffs

By JENNIFER ROBISON
REVIEW-JOURNAL

Slot-machine maker International Game Technology and the University of Nevada, Las Vegas share little in common at first glance.

But thanks to a struggling local economy, the two operations experienced exposure in 2008 to a growing employment trend: The employee buyout, a voluntary cousin to the layoff. In a bid to shed workers and cover budgets in hard times, employers are increasingly offering buyouts to workers who choose to resign. Buyouts can spare managers some of the toughest decisions about who must go, and properly crafted, they can protect employers from lawsuits alleging wrongful termination.

IGT said in September that it would offer buyouts to 1,000 workers, including 500 employees over 55, in an effort to pare its staff of 5,400 by January. Company executives haven't publicly disclosed the terms of the buyouts.

PHOTO BY K.M. CANNON | REVIEW-JOURNAL
NOW: University of Nevada, Las Vegas President David Ashley speaks Sept. 23 during a student conversation on budget issues in the theater at the Student Union.
THEN: UNLV offered 300 faculty and staff members buyouts in July. The university offered the deal to two groups of workers: those who were at least 60 and had at least 10 years of experience at the school, and employees whose age and years of experience at UNLV totaled at least 75. The agreement paid severed workers 110.5 percent of their pay for a year.

PHOTO BY JOHN GURZINSKI | REVIEW-JOURNAL
THEN: International Game Technology opened a manufacturing plant in Las Vegas in July 2007.
NOW: International Game Technology sent its employees a letter in September noting that the company would look to cut its staff of 5,400 by January through buyouts. The slot-machine maker didn't publicly disclose the conditions of its offer, but executives said they offered the buyout to 500 workers over 55. The company wants to reduce its staff by up to 1,000 workers.

K.M. CANNON | REVIEW-JOURNAL FILE PHOTO
Part-time instructor and doctoral candidate in English Kathy Anders questions UNLV President David Ashley about the university's budget Sept. 23 during a meeting in the Student Union.

And UNLV presented buyouts to nearly 300 faculty and staff, including 200 tenured faculty members, in July. The deal, good for anyone who was at least 60 and had at least

10 years of experience at UNLV or whose age and years of experience totaled 75, gave workers 110.5 percent of their salary for a year. That agreement followed a buyout offer for nearly 100 UNLV workers in the spring and summer.

Berna Rhodes-Ford, an employment lawyer with Holland & Hart in Las Vegas, said her firm has seen a 50 percent increase in the last year in the number of local clients looking to arrange employee buyouts. Big, publicly-traded companies such as casino operators are most likely to put together buyout programs, added Robert Anderson, a corporate-transaction lawyer with Holland & Hart.

The gain in buyout queries mirrors a national trend. Before major area employers adopted large-scale buyouts, some of the nation's best-known businesses were offering deals to workers. General Motors gave some staffers as much as $140,000 to walk away from the carmaker in February. In January, Ford Motor Co. proffered buyouts to all 54,000 of its hourly workers, and Chrysler extended packages of up to $100,000 to employees. Nissan, Delta, Yahoo -- all shelled out cash and health benefits in 2008 to avoid layoffs by encouraging workers to leave.

John Challenger, chief executive officer of Chicago outplacement firm Challenger, Gray & Christmas, said he's observed the buyout trend among "old-line" businesses in particular. Manufacturers, carmakers, airlines, newspapers and even banks tend to employ legions of longtime -- and well-paid -- staffers.

That worker mix is one reason some businesses prefer buyouts over layoffs. Because companies typically base buyout severance on tenure, veteran workers generally receive fatter packages. The result: a work force that voluntarily thins itself of the long-term staffers with the biggest salaries. A business that imposes involuntary layoffs only on staffers with seniority could quickly find itself staring down an age-discrimination lawsuit.

"Buyouts cost money, but that payout could be less than the cost of legal difficulties following a layoff," Challenger said. "When companies sweeten the pot and give people a chance to opt out, they in essence pay more to cut back on their legal exposure."

Anderson agreed layoffs carry a legal liability that buyouts often neutralize.

"Every time a company announces layoffs, we get calls from people who want to sue their company for wrongful termination," Anderson said.

Voluntary buyouts, especially when paired with a release form protecting the company from future claims, usually mean fewer legal hassles.

But buyouts aren't just about avoiding lawsuits. They're about corporate culture as well. Companies with a close-knit, familylike atmosphere don't want to leave their valuable workers with nothing, Rhodes-Ford said.

Buyouts also help maintain morale among staffers left behind, Anderson said. If colleagues are bought out with enough money to make house payments for a while, workers will feel better about the company than they would if they saw mass layoffs without pay for coworkers living paycheck to paycheck.

"Companies need to think seriously about morale," Anderson said. "They want the group that remains to feel good about the company and at least feel that if things get worse, they'll have a similar package. You don't want to lay off 1,000 people and have another 500 leave because they're disheartened about what happened to their friends and colleagues."

Some executives also weigh employees' skill sets when choosing between buyouts and layoffs. Highly specialized workers might face a tougher time finding another job than lower-skilled workers would have, so companies will often offer buyout deals to higher-level people to smooth the transition into a new position.

Still, buyouts carry their own risks, experts said.

Companies offering buyouts could lose some of their best workers, because strong employees with the finest career possibilities are most apt to take the deal. Poorly performing staffers worried about their prospects on the job market are likelier to "hunker down" and stay put, Challenger said. Some companies maneuver around that dilemma by quietly telling their best workers that they're needed long-term, and asking them to decline the buyout. There's also legal precedent for companies denying an employee's buyout bid if executives deem the worker critical to the operation's day-to-day function.

Weighing buyouts vs. layoffs is a calculation more companies will find themselves making as the economy staggers along, Rhodes-Ford said. Expect buyouts to trend upward as long as the business climate flags.

"Given the economy, people are trying to mitigate their losses as much as possible," she said. "Companies like buyouts because they want to know for sure that when you walk out the door, you're not coming back in a month to file a lawsuit. And with this economy, companies don't want any negative publicity that comes with layoffs. We're going to see the buyout trend continue until the economy turns around."

TIPS FOR EMPLOYERS

• Understand buyout basics. A competitive plan will include severance pay, continuation of paid health insurance and outplacement services such as resume writing and headhunting help. Placement assistance is especially key for higher-level executives, because they'll have a tougher time finding similar positions. Some businesses even offer cash for continuing education or training, though that's less common today because many companies simply can't afford it anymore, said Berna Rhodes-Ford, an employment attorney with Holland & Hart in Las Vegas. Employers also need to include a "general release of all claims" form that ensures employees can't come back and sue for wrongful termination.

"There's no point to working up a wonderful buyout plan to give $3 million to your employees, and having them all come back and sue you anyway," Rhodes-Ford said.

• Determine whether you have a protected class. Before you make any official decisions, experts recommend assembling a sample of all the people you'd lay off. If a protected class -- older workers or staffers of one gender -- dominates, then consider a buyout plan to avoid a discrimination lawsuit. If your group doesn't center on one protected class, and if you have "very strong documentation" of poor performance among many of them, you could probably opt for involuntary layoffs instead, said John Challenger, chief executive officer of Chicago outplacement firm Challenger, Gray & Christmas.

• Minimize the damage to corporate culture and morale. Buyouts and layoffs inevitably bring broad feelings of anger and betrayal among employees, Challenger said, and when times toughen, it's typically the most fearful workers who drive a company's internal conversation. Where little communication exists, rumors fill the void. Companies must tackle the most pernicious gossip head-on, even if the communication merely acknowledges the rumor and follows it up with a brief "no decisions have been made."

Robert Anderson, a corporate-transaction attorney with Holland & Hart in Las Vegas, suggested holding a monthly company lunch with employees and executives. Ask company leaders to discuss the company's current health, how they're reacting to hard times and where they see business headed.

"You have to communicate with your employees, because if there are buyouts or layoffs and then there's silence, everybody is just waiting for the other shoe to drop," Anderson said.

Be as honest as possible, but keep your overall message upbeat, Rhodes-Ford said. Bad morale affects productivity. Workers left behind start skipping work because they don't see a future for their business, or they're out looking for another job. Employees huddle around the water cooler talking instead of working, or they spend company time surfing the Internet and visiting job-search Web sites.

"You can get into a downward spiral," Anderson said. "Employees don't respond to customer-service issues and salespeople don't sell, so it's almost like a self-fulfilling prophecy. Everybody starts looking for the door instead of thinking about how to keep the company alive. You really have to keep morale up."

• Give yourself, and your employees, time to digest the offer. Announcing buyouts a month or more before you plan to make final cuts will give you time to evaluate buyout applicants. Sift through personnel files to spot applicants with a history of disciplinary problems, or to pinpoint applicants with consistently strong evaluations, Rhodes-Ford advised. Giving several weeks' notice also allows workers to put out feelers and develop some employment prospects, which could in turn generate more buyout takers.

• Keep your best workers. There's nothing wrong with approaching your company's top performers behind the scenes and quietly letting them know they're valuable, and that you hope they don't take the package.

"It's a win-win to tell someone they're particularly valuable to the company and they have skills the company needs," said Mark Ricciardi, managing partner of the Las Vegas office of labor law firm Fisher & Phillips. "It would send a message to the employee that they're not slated for layoff later."

• Let employees know corporate opportunities still exist. Tell workers with as much certainty as you can muster that you're done with cuts for now. Make sure you let them know that the perks that motivate employees, such as possibilities for promotion and cross-training, will exist going forward.

"Employees want to know if there's still a future at your company even if they don't get laid off," Ricciardi said.

TIPS FOR EMPLOYEES

• Weigh your position at your company. Ask yourself how much your company needs you. Form an honest assessment of how you're viewed in your department. One key omen: You're getting fewer assignments. Also be leery if your last review was less than stellar.

• Consider your place in the corporate culture. What's your relationship with your company? Are you tied in and connected with the group, or are you always at odds with the business and its leadership? Companies tend to keep people who will be happy staying at the business, so consider your attitude. Also, understand broader trends in your company and industry to weigh your long-term prospects. If your company is laying people off, but the layoff doesn't seem deep and the business is No. 1 in its industry or market, that's different from a laggard company that doesn't perform well, said John Challenger, chief executive officer of Chicago outplacement firm Challenger, Gray & Christmas.

• Talk to your boss. If your relationship with your supervisor is troubled -- you're too distant or antagonistic -- now's the time to mount a campaign to repair that relationship. Challenger suggested a heart-to-heart chat with your boss to begin repairing past damage. Remember: Your boss might be just as vulnerable to job loss as you are, so it could be a good time to connect with your manager on a deeper level.

• Evaluate your career prospects outside the company. Have a new job goal in mind, Challenger advised. Don't just aimlessly take the package without an action plan. You need to first determine whether there are other jobs for you, as well as whether you're willing to work hard and chase opportunities immediately.

"A lot of people get their package and sit on it for six months while they think about what to do next," Challenger said. "That can lead to longer job searches and more difficulties replacing income flow. You need to be willing to get out and look right away."

If you have a few weeks to mull a buyout, put out feelers to other companies right away and gauge interest in your resume, said Berna Rhodes-Ford, an employment attorney with the law firm of Holland & Hart. If your applications get a few nibbles, it's probably a good idea to accept the buyout and move on, especially if a second round of buyouts or layoffs might come.

Better yet, think about starting a job search as soon as you hear rumors of possible buyouts, said Robert Anderson, a corporate-transaction lawyer with Holland & Hart. If a casino announces a buyout of 1,000 employees, then you'll be competing with 1,000 coworkers knocking on the doors of other local casinos at the same time.

"If you can get ahead of that wave, you have a better chance of finding a job," Anderson said.

• Be careful with your money. Your severance isn't a windfall. It's a bridge to your next job. Until you're well-settled into your next position, be cautious about your expenditures and rein in expenses, Challenger said. Also, your lump sum could bring out financial advisers exhorting you to spend on annuities and other commission-based investment vehicles. Be wary of such advice.

• Take the buyout if you have any question about your future with the company. There might be other deals later, but the next round will likely involve layoffs -- involuntary, targeted at "bottom performers" and bringing a smaller pot of incentives, Challenger said. Ford, for example, enforced involuntary layoffs for 2,500 hourly workers in March after they declined a January buyout offer.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.

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