It’s never easy to make the decision to let employees go. However, when workforce reductions are necessary, starting with a voluntary separation package can be a preferred alternative to involuntary layoffs, for both the organization and employees.
What is a voluntary separation program?
A voluntary separation program is when an organization offers a buyout package to employees to encourage them to leave the organization voluntarily. The package typically includes a combination of pay and other benefits resembling a severance package. The employees who take the buyout agree to terminate their employment. Those that don’t accept it continue their employment.
Sounds like a win-win, right? It can be, but there are both pros and cons to consider when building a voluntary offer for employees.
The Offer
Who gets it?
Start by identifying who is eligible to receive the voluntary separation package. Typically, this decision is based on one of the following approaches:
- Wages: The highest earners for each role or department where reductions need to be made are presented with a voluntary separation package. By targeting highly compensated employees, organizations may be able to meet cost reduction targets and keep more employees overall.
- Age: Employees who are close to or even past the typical retirement age are presented with a separation offer, as they may be in the best position to take a buyout.
- Lower performers: Employees known to be underperforming and who would likely be considered first for an involuntary reduction are made a voluntary separation offer first.
- Low skills: Employees whose skills have gotten out of alignment with business needs are offered the voluntary separation package.
- Last in, first out: A tenure-based approach that targets employees who have been with the organization for a shorter time. It may also be perceived internally as a fairer approach by those with more tenure.
- Everyone: An approach where the voluntary separation offer is extended to everyone in the organization. This approach will be perceived as fair but should be managed carefully as the organization may lose employees who are critical to the business, or there may be more volunteers than needed.
What’s included in a voluntary separation buyout?
Typically, involuntary severance payments are based on giving 1-2 weeks of paid salary for every year worked. Voluntary separation offers on the other hand, are not typically calculated based on years of service, but are rather a multiple of monthly salary (i.e., 5-6 months of salary) to ensure the offer is competitive and attractive regardless of tenure. In addition, employee benefits including health insurance and other items in the benefits package are often continued for the same length of time as the salary offer. Outplacement services to help support employees in finding a new job and other creative perks that would specifically motivate employees to accept the offer can also be included.
How will you manage it?
Organizations should consult with their legal team, especially the first time building a voluntary separation package. While businesses may be well versed in the potential risks associated with involuntary workforce reduction events, there will be new risks to consider with voluntary reductions in force. Make sure you set a clear timeline and outline a voluntary separation plan to execute the workforce reduction. Once the plan is in place, be clear in communicating to employees why you are doing this, who is included, and what to expect during the process.
In addition, managing voluntary events is done much more efficiently when utilizing offboarding software. These platforms can help support during all phases of the voluntary separation including identifying the population it will be made available to, putting together the voluntary separation package, identifying the process for offer acceptance, and managing the employee offboarding process. Some platforms even include Assessor workflows to allow line managers and other stakeholders with knowledge of the separation plan to flag employees critical to the business before voluntary offers are communicated.
The Pros
For the Organization:
- A voluntary separation can help preserve employee morale and the organization’s reputation while taking the necessary steps to reduce head count.
- Lawsuits are less likely with a voluntary separation. However, it is still necessary to consult with the organization’s legal team the same as would be done for an involuntary reduction.
- Employees who choose to remain are likely dedicated to the organization and are not a flight risk.
For the Employee:
- Those already considering retirement or moving on to another organization, can do so on their own terms and receive financial incentive to do so.
- The business may be more willing to negotiate terms for voluntary separation packages, allowing employees to maximize their offer.
The Cons
For the Organization:
- Good voluntary separation packages are expensive. Make sure all potential costs are considered and remember that the buyout is only one element of the total financial impact.
- Those who accept the buyout may be some of the business’ most valuable employees in terms of knowledge, productivity, and experience.
- Remaining employees may be negatively impacted by loss of knowledge, relationships, and increased workloads. If the potential impact to workload is not calculated correctly, the business may end up having to pay overtime or risk lower morale for salaried employees.
- If there are not enough volunteers electing to take the separation offer, the organization may still find itself needing to conduct involuntary workforce reductions.
- The business can still be open to discrimination lawsuits based on the selection criteria chosen for the offer.
- Employees may feel empowered to negotiate to improve the terms of their voluntary separation offer.
For the Employee:
- Employees who accept voluntary buyouts are typically not eligible for unemployment.
- It may be more difficult or take longer to find another job than anticipated.
- The impact of losing a job voluntarily may be underestimated.
Summary
When downsizing is inevitable, voluntary separations can be a good alternative to involuntary RIFs/layoffs for businesses. Businesses can achieve cost reduction targets, preserve their reputation, and reduce the overall risk of unintended financial and legal consequences.
If your organization is considering a voluntary or involuntary workforce reduction, contact us to learn more about how Transition Manager can operationalize the process and improve your business outcomes.
