Take It or Leave It? When to Accept a Pandemic-Era Buyout
Aug 24, 2020 | Ignites
The ripple effects of the pandemic have caused many fund shops to tighten their purse strings, and in some cases, extend buyout offers to their employees.
But for some employees, buyout offers can create even more uncertainty.
Firms such as TIAA, American Century and Prudential have offered their employees pay and benefits to leave the company.
TIAA, for example, offered 75% of its workforce voluntary separation packages that included extended pay, health care and bonuses. The package included up to 91 weeks’ salary, depending on the employee’s current pay level and tenure, as well as their 2019 cash bonus, 18 months of health insurance and six months of outplacement assistance, according to a TIAA spokesperson.
The firm expects the buyout offers will trim firmwide head count by 10%, executives said last month. About 5% of Nuveen’s investment employees also took advantage of the offer.
The industry average buyout is roughly 45 weeks’ pay, according to Alan Johnson, president of Johnson Associates. It also often includes bonuses and benefits, the size of which often varies by seniority or longevity.
American Century in March offered buyout to 10% of its employees. The firm did not disclose the terms of the package. At the time, the firm projected that 30% to 75% of eligible employees would accept. A spokesperson for the Kansas City-based firm did not respond to a request for comment.
And last fall, Prudential offered buyouts to employees in many units, including its retirement, annuity and insurance businesses. PGIM employees were ineligible for the package, a spokesperson told Ignites at the time.
The firm did not disclose what was included in the packages. However, the Newark, N.J.-based firm spent $365 million during the last three months of 2020 on severance, technology and employee-reskilling initiatives, regulatory filings show. A company spokesperson declined to comment.
The rationale for taking a buyout is different for each person, recruiters say. However, anyone who is offered one should consider their options, given the current job market and economic environment.
“If you have money saved and this adds to that, and you can imagine living without being worried about a paycheck, you should really seriously think about doing it,” says Jeanne Branthover, managing partner at DHR International’s global financial services practice.
Buyouts could give employees nearing retirement an opportunity to reassess and adjust their budgets so they can step into the next chapter sooner than expected, she adds.
But younger workers, who may face a stagnant job market on the other side, have markedly different considerations.
“Companies think long and hard about who is going to head up a department,” says Branthover. “This also helps succession, as crazy as that might sound.”
Some employees who refuse the buyouts could position themselves for a promotion they wouldn’t have ordinarily gotten now, she notes. For example, if a senior leader takes a buyout, his or her successor could be someone who refused that same offer.
Firms planning buyouts recognize that many will leave their offers on the table, despite the risk of losing their jobs to layoffs down the line.
“If you’re offering to 75%, you’d probably like 10% out of that to take it,” says Alan Johnson, president of Johnson Associates. “And firms usually have fine print, which says if too many people take it, they’ll cap it.”
The influences of improved technology and pandemic conditions will ultimately combine to reduce the asset management workforce by 10% overall, he adds. The larger focus, he says, is on preserving company culture and saving face by offering generous packages before resorting to layoffs.
The exact size and scope of the buyout offers may differ by title or firm. While executives may be offered months’ worth of salary and sizable bonuses as an attractive parachute to weather the pandemic, entry-level employees typically get smaller payouts that necessitate immediate and sometimes protracted job searches, Branthover says.
And recruiters and hiring managers don’t typically see the decision to take a buyout as a reason not to hire someone, especially given the extenuating circumstances of Covid-19, she says.
“If somebody got a buyout and they’re interviewing somewhere else, that’s a lot better than having been fired,” she adds. And the work-from-home reality could create opportunities for job seekers to apply for positions in locations that were untenable before the pandemic.
The pandemic has also pushed some workers to reevaluate their work/life balances, Branthover says.
“I think there’s more people saying, ‘Why should I be working this hard anymore?’” she adds. “People are definitely thinking differently about their future and what they want to do.”
This could mean that some employees retire early, relocate to live near family or cut their personal budgets, she says.
“The hardest thing for most people is making the decision to stop working and taking the X amount of money. It’s very final for a lot of people,” says Branthover.
Volunteering to leave a stable job during a pandemic seems counterintuitive, and even risky, but leaving the offer on the table presents its own risks, says Johnson.
“Unfortunately, oftentimes buyouts are followed by layoffs,” he says. “And layoffs usually have less generous terms. The first thing you’re offered is usually as good as it gets.”
However, it is ultimately up to each individual to calculate how vulnerable their position is, and decide whether that risk is worth taking before denying a guaranteed offer.
“If you’re someone that doesn’t have money saved, and this amount of money isn’t enough to keep you going long enough to find your next job, then don’t do it,” says Branthover.
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