Voluntary Buyouts – The Delayed Impacts That May Linger For Years

Dr. John Sullivan and Michael Cox

Even after the initial negative impacts that were covered in yesterday’s companion article “Voluntary Buyouts – Why Every Shareholder Should Fight Them” fade. It’s important that executives and shareholders be aware of some continuing dollar costs that may take some time before they negatively impact your balance sheet. Those delayed impacts include:

  • Shareholders should take the buyout offer as a signal that you have weak managers. It may take a while to realize that your executives will not measure the real costs of using voluntary buyouts rather than targeted layoffs. Even though they are an inferior option, voluntary buyouts are primarily undertaken because your managers don’t know who are their top-performing “keeper employees.” Another possible explanation is that these executives and managers are simply afraid and unwilling to make the tough decision of selecting and then personally telling individual employees that they are being let go. At corporations like Boeing and United that have done voluntary layoffs in the past, repeating this questionable practice shows that your senior leadership has not learned a single strategic lesson. As a shareholder, you should consider the buyout offer a signal that your senior management team is not data-driven. There is no public data indicating that voluntary buyouts are the best option for reducing costs. There are plenty of examples that show that these buyouts don’t even forestall future layoffs. 
  • Innovators will leave. If your organization requires continuous innovation to compete in a fast-moving environment, buyouts are a bad solution. Among all of the employees that will be sought out by others, proven innovators are the most desirable. Historically, most innovators have been treated pretty well, they may not decide to leave immediately. For those that remain, a few months of the disruption and uncertainty may begin to squash innovative spirits. In addition, freezing promotions, pay increases, and innovation budgets may limit your innovators’ motivation and willingness to be creative. If you eventually begin losing these prestigious innovators, expect other innovators and exceptional employees to consider that as a signal that it’s now time for them to jump ship.
  • Departures in growth units will limit future company growth. Within most large companies, even during tough times, some business units are growing, while others are shrinking. By not restricting employees working in rapidly growing business units from accepting buyouts, you provide external recruiters with many highly desirable targets. If they are successful in disproportionately raiding these growth units, you may have unintentionally impacted your rapid growth and top revenue-generating divisions. In global corporations, some regions are likely to be growing despite the downturn. So allowing buyouts in growth regions will threaten your competitive position.
  • Even if they initially stay, frustrated “survivors” may soon leave anyway. Budget freezes frustrate top performers. To these individuals, merely freezing their resources means stagnation and few chances to try new things. They may initially think that they can handle their budget freezes. However, they get further frustrated by the lack of opportunities caused by freezing pay, promotions, travel, and/or training. These initial “survivors” might change their mind and decide to leave even without the cash buyout incentive. Stretching out the pain with the same end result of losing top-performing employees isn’t a sign of great management.
  • Many of your future leaders will walk out the door. When business growth returns, you are going to need already trained leaders that are ready to move up. Since every firm seeks future leaders, it’s important to realize that your most promising lower-level leaders will definitely be targeted and lured away by companies in your, or in other, industries seeking the leadership talent essential for growth. Unfortunately, you’ve already paid for their growth and leadership development, so the benefits from those investment dollars will go to other companies.
  • The created internal churn will be disruptive. Because employee loss is not targeted, your team will struggle to pivot. The loss of many employees on a single team means that you will need replacements to continue to function. If there is a hiring freeze, these replacements will need to come from the inside. This is problematic because internal movement processes are typically slow. So, this large-scale redeployment turn will require a great deal of training for the redeployed employees. It will create disruption with so many employees entering new positions at the same time. 
  • These buyouts will disrupt the workplace and your culture for a long period of time. Both the talk of upcoming buyouts and their actual execution is always a major distraction to employees. The talk surrounding these buyouts will cause stress and anxiety. The amount of inter-office discussion, rumors, gossip, and speculation over who will take it will steadily increase to the point where it will be hard to get any work done. Pinpoint layoffs may be more difficult to make but they’re over usually in a single day and they don’t drag out the pain and turmoil. It’s also important to include the costs related to damaging your culture. Losing even a small number of your most seasoned and experienced employees will likely weaken your corporate culture. These individuals are the most effective supporters and defenders of your culture. If your culture stops encouraging positive behaviors and values, the costs could be incalculable.
  • Getting rid of “deadwood” will be curtailed. Unfortunately, after the buyout, not being able to fill vacant positions will cause managers to slow down or even cease their efforts to get rid of their “deadwood” employees. “Carrying” these low performers leads to lower productivity overall. And, it weakens your managers by not forcing them to confront low performers. It gives managers an excuse not to make tough people decisions, which may eventually weaken their decision making in product areas.
  • Voluntary buyouts will encourage your competitors to raid. Obviously, the buyout offer will be visible to outsiders as the news of their existence spreads rapidly. These releases of employees send a message to your competitors that you are “weak” and struggling. This may cause your competitors to increase their efforts to recruit away your employees and more often than not, your customers.
  • Potential legal issues. It’s important to note, that at least in the US, you can’t easily control or “influence” the experience level of those who accept your offer because of discrimination laws. So it’s pretty much guesswork up until decision day on which jobs will be most impacted. If you attempted to steer the buyouts to be used by certain, older employees, you may be disappointed.

Recruiting Can Mitigate the Negative Impacts of Voluntary Buyouts: Pivot and Innovate

After the buyout is completed, it is likely that most recruiting will be frozen for up to a year. However, some targeted recruiting will still be critically important. Most importantly, to replace any critical former employees that took the buyout and to replace those employees that change their minds and decide to leave after they experienced the frustration in the months after the buyout. Targeted hiring will be needed to fill new positions that are critical for company growth. New hiring will be very difficult because your employer brand will have been hurt by the large amount of negative media publicity surrounding the buyout. The cost of repairing your employer brand will have to be deducted from the voluntary buyout ROI. Referrals will likely go to hell because your employees will be reluctant to refer anyone into the current state of turmoil. 

To be successful, even with this limited amount of hiring, recruiting’s ability to sell reluctant candidates will have to be fortified. The capabilities of the recruiting function should be maintained to successfully “cherry-pick” top talent that have suddenly joined the ranks of the unemployed. This counter cycle recruiting can generate huge returns. After large-scale layoffs, both the amount and the quality of available talent increases dramatically, especially among those that lost their jobs when a complete facility or function was shut down.

Final Thoughts

To begin with, every shareholder should realize that cutting all non-people costs to the bone in order to save “the people” is a flawed concept. Without the necessary support resources of budget, training, incentives, and the necessary tools and technology; you inadvertently limit the probability of success of each of the employees that you scraped to keep. Don’t create blind across-the-board preference for people. Instead, make sure that each remaining employee has sufficient resources and tools so that they can maximize their effectiveness.

From the shareholders’ view, the very thought of paying your best people a bonus to leave seems to defy logic. For example, if the Los Angeles Lakers paid LeBron James a large lump sum to leave. Immediately after receiving that payout, he could join a competitor’s team unencumbered (without any payment to his former team). The next day he could begin beating your Lakers on the court. Every Laker owner and shareholder would scream at the top of their lungs about the silliness of this approach. As any shareholder at United, Boeing or Goodyear should when they hear that their shortsighted executives and managers weren’t targeting their layoffs to low performing employees working in low impact jobs. So, please help spread the word about the silliness of voluntary buyouts. 

Author’s Note: If this article stimulated your thinking and provided you with actionable tips please take a moment to follow and/or connect with Dr. Sullivan on LinkedIn and subscribe to his weekly Talent Newsletter.

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About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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