Last Updated: October 1, 2008
Corporate buyouts are a call for planning, not jubilation.
The idea that you might be given a pile of money just to leave a troubled workplace is pretty tantalizing, but you need to consider a set of important questions before you make your decision. Some of the questions are general, but most are personal.
While there are no strict rules of thumb as to who might be a more likely candidate for accepting a buyout, generally, most experts say that those who are within 3-5 years of retirement should take a closer look. Also, if you've been passed over for a promotion or if you sense you're not quite as valuable to the powers that be than your co-worker in the next cubicle, it's not such a bad idea to check it out. Lastly, if you're not in either category but you have a great job opportunity waiting, it might also be worth a look.
But get some help. A financial expert such as a CERTIFIED FINANCIAL PLANNER™ professional is a good ally when looking at all the various income, spending, insurance, tax and employment realities you'll face if you take a company buyout.
So before you leap, here are some things you should ask:
Do you have a plan? In other words, is this about getting a sudden and unexpected vacation, or is there actually a next step here? A financial planner can look at your tax and spending situation to see if you can cover your expenses until you find a job. Obviously, if you are on line for a new job in the coming weeks, then you can turn your attention from covering expenses to investing the after-tax windfall. Of course, if your company wants you to sign a non-compete agreement, that's going to affect your ability to take another job quickly in your field, so that's another money issue.
Is this the first buyout? By that, we mean, is this the first of what may be a series of buyouts? Generally, buyouts don't get more attractive as cuts go on. On average, standard first-series buyouts may provide six months to a year of pay for non-managers or be tied to some other measurement, such as X number of weeks of pay for every year served. If your company has done buyouts in the past, make sure you know whether the packages stay the same or get worse.
Can you negotiate? You have to lose any fear you have about talking about money. Talk to your colleagues about the packages they were able to get or what they have heard about previous packages. If you find out you're getting worse terms than others, insist to your human resources department that you want to improve those numbers. Also, it might make sense to talk to an employment attorney not only for advice on what you should negotiate, but to review any agreement you reach.
Will the company extend your insurance? What will your employer grant you as far as health, disability, life and any other insurance coverage you're currently receiving from your employer now that you're planning to leave the company?
What about your retirement plans? Chances are you won't be seguewaying into retirement immediately as you would if you could quit your current job on your own terms, so you really need to re-examine all aspects of your retirement picture to make sure you'll still be on track if you take a buyout check and more important, if you might not be working for awhile. Keep in mind that you can also negotiate your pension levels – most employees can access their pension at age 55, but if you're offered an earlier buyout, see if you can "bridge" payments so you can leave with payments into your pension that you would actually have if you stuck around until age 55.
What about stock options and perks? If you have stock options that haven't vested, ask if that can be done automatically at the time of your departure. Also, if you have a company car, club memberships or other perks as part of your regular employment incentives, see if you can keep them.
Will the dollars throw you into another tax bracket? This is why it's good to consult a planner and a tax expert who can find ways to blunt the impact. If your company is in good financial shape overall, see if you can take the money in installments or if you could push payments into next year.
Do you have to leave immediately? Most companies like people out the door pretty quickly after they sign on the bottom line, but if you can accumulate more funds without putting more pressure on your tax situation, do it.