CASH AND RELEASE
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.
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 -- workers.
That staff 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 workers 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 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 problem 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 versus 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."
This story first appeared in the Business Press. Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.
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 -- workers.
That staff 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 workers 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 problem 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 versus 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."
This story first appeared in the Business Press. Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.
