How do you sell a buyout?

October 25, 2011: 10:48 AM ET

It's a challenge to convince an employee to take a buyout even in a decent economic climate. Within Detroit's auto industry, much of the responsibility has fallen on the UAW.

By Shelley DuBois, writer-reporterUnited Auto Workers

FORTUNE -- It's hard to gracefully convince an employee to leave your company, even in the best economic circumstances. And during a downturn, the conversation becomes even trickier.

This is just one piece of the negotiations that the United Auto Workers has been trying to navigate. Over the past few weeks, the UAW has been negotiating with Ford (F), Chrysler, and GM (GM) to boost American jobs but keep the companies cost-competitive with automakers overseas. So far, UAW members at Ford and GM have voted to accept agreements with those companies, but have yet to ratify one with Chrysler. In general, all of these companies plan to hire more hourly employees and cut down on more expensive personnel, usually long-time workers.

This sort of agreement often means that these companies will begin to offer those expensive employees a buyout package. And that is a tough tightrope to walk for any manager: how do you simultaneously encourage certain people to leave, keep key staffers, and maintain goodwill?

In the case of the Big Three, much of the responsibility falls on the UAW. "Still, they're going to need to look their membership in the eye and say, 'we did negotiate a good deal for you,'" says Arthur Noonan, a human resource consultant at Mercer.

The challenge on the corporate side is that while these companies are trying to cut costs, some of the offerings that make a buyout package fair and attractive are expensive.

Take healthcare. It's one of the most important pieces of a package for employees, and one that offers them the most security. But companies are careful to commit to healthcare benefits in a buyout package, says Elliot Dinkin, president and CEO at consulting firm Cowden Associates, because they can't control those costs on the back-end.

When offering a buyout, the best buffer for back-end problems is to plan on the front end. Managers need to have a clear idea of what they want the company to look like after the workforce changes, Dinkin says. Companies can suffer if they cut jobs without thinking about the talent they need to keep.

Retaining the right employees is one of the most challenging aspects of a buyout. Because of anti-discrimination laws, managers often have to offer a blanket buyout to a group of people, including some workers who are considered crucial to the company. Leaders can try to discuss added incentives with these workers to get them to stay, but there's no guarantee that they will. And managers stand to be surprised by those who ultimately opt for the buyout, and those who don't.

"They always try to picture themselves as the employees," says Dinkin. "They'll say, 'well, if it was me, I would take it,' but they can't superimpose those thoughts on somebody else."

Many unknowns factor into the choice to walk away from a steady job: proximity to retirement age, a spouse's employment status, and the state of the economy, to name a few. "[Management's] estimation of how workers are going to act can be very different from reality," Dinkin says. "Some people have trouble dealing with that because they think they know their employees better than they do."

It can be especially hard to convince enough people to take a buyout if the companies have negotiated them before. In that case, says Noonan, organizations are dealing with the subset of people who have already turned buyouts down. "When you go to the buyout trough a lot, you train people to wait for the next offer," he says.

That could be an issue with the UAW agreements. Since 2006, the American auto industry has shrunk considerably. All of the Big Three companies have gone through several rounds of buyout offers already. These companies and ones in similar situations have to have a backup plan if too few people choose to leave. That may mean offering traditional severance packages.

And buyouts, though unpleasant, are often better than that alternative. "I wouldn't say that you're boosting morale," Noonan says, "but you mitigate the ill will that a pure layoff generates."

Unfortunately, he says, in most industries, layoffs are much more common these days. Employees who even get the chance to bid on a buyout are in the minority.

Join the Conversation
About This Author
Shelley DuBois
Shelley DuBois
Writer - Reporter, Fortune

Shelley DuBois writes on management issues for Fortune.com. Before joining Fortune, she was a producer for National Public Radio's Science Friday and worked for Wired. Shelley has a graduate degree in science, health and environmental reporting from New York University. She lives in Brooklyn.

Email Shelley
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.