March 28, 2006 in Business

Buyouts are tricky for bosses, businesses

Jeanine Aversa Associated Press
 

WASHINGTON — What would you do if your boss offered you a wad of cash to quit? Take the dough and split or stay and live with the fear that you might be axed anyway?

General Motors Corp.’s offer last week to buy out more than 125,000 workers from GM and its auto parts supplier, Delphi Corp., put a spotlight on a tactic that many companies — and the government — use to cut costs.

“Buyouts have traditionally been a way to invite employees out the door, rather than shove them out,” said J. Mark Iwry, senior fellow at the Brookings Institution and senior adviser to The Retirement Security Project, a nonprofit group.

Deciding whether to take a buyout offer can hinge on any number of factors, including age, years of service with the company, skills and prospects for finding another job and whether a spouse has a job with health care or other benefits, experts say. Thus, there’s no one-size-fit all advice.

“Workers should think about it very carefully and go through a very clear evaluation,” said Dallas Salisbury, president of the Employee Benefit Research Institute.

“I think many people end up taking buyout offers quickly because $100,000 (or some other lump-sum payment) can seem like a great deal of money, only to end up realizing after the fact that it wasn’t enough to justify leaving,” Salisbury said. “People need to avoid the wide-eyed feeling of I’m winning the lottery and make sure they think about if I am 50 I still got decades ahead of me.”

In the GM case, workers are being offered buyouts or early retirement incentives of $35,000 to $140,000 depending on length of employment and whether they want to keep health care and other benefits.

Even if all eligible workers take the offer — one of the largest ever in U.S. history — there wouldn’t be any noticeable impact on the nation’s unemployment rate, now at 4.8 percent, or overall economic activity, economists say.

Yet, the GM buyout offer underscores the competitive woes of U.S. auto makers and the difficult choices facing GM and Delphi workers.

In manufacturing, workers who leave their jobs “take a beating because the skills they have are pretty limited,” said Robert Topel, economics professor at the University of Chicago’s Graduate School of Business.

For the auto sector specifically, some workers might find work at another auto plant, perhaps a Toyota or Nissan factory, Topel said. “But by and large these people will change occupations or they will retire,” he added.

From a company perspective, buyouts can be met with varying degrees of success.

“They are a blunt force instrument, versus a fine surgical instrument,” said Alan Glickstein, senior consultant at Watson Wyatt Worldwide, a human resources consulting firm.

“You take a bit of a shot in the dark and usually offer them to a broad group of people. But it is a little unpredictable. How many are going to go and who is going to go? The company might get exactly what it wants or get something different,” Glickstein said.

For instance, the offer could be overwhelmingly snatched up by the most productive or better skilled workers, leaving the company with a smaller — but perhaps less nimble — work force. The mass exodus of older, more experienced workers can cause brain drain.

When companies don’t achieve their cost-cutting or downsizing goals through buyouts, they are likely to eventually turn to forced layoffs.

© Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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