Voluntary Buyouts: A Compassionate Alternative to Layoffs
When a workforce reduction is necessary—whether due to economic changes or business uncertainty—employers should carefully weigh their options. While layoffs may seem like the obvious answer, more and more companies are considering creative alternatives like voluntary buyout programs.
Voluntary buyout programs enable employers to reduce their workforce while simultaneously empowering employees to leave the company on their own terms. Traditional layoffs can leave employees feeling undervalued, while voluntary buyout programs provide a more compassionate alternative.
If managed properly, a voluntary buyout program may address your company’s financial needs while maintaining employee morale.
What is a Voluntary Buyout Program?
In certain situations, employers may choose to offer voluntary buyout programs to their employees. Voluntary buyout programs are created with the goal of encouraging employees to voluntarily separate with the company. These programs are often built upon financial incentives, like severance pay, stock options, or retirement-related benefits.
Some voluntary buyout programs are referred to as employee buyouts, voluntary separation program (VSP), voluntary retirement program (VRP), or voluntary layoffs.
When Do Companies Offer Voluntary Buyout Programs?
Companies sometimes face the difficult task of reducing employee headcount. This need may stem from restructures, redundancy, budget cuts, or other significant business changes. Depending on the circumstances of the workforce reduction, employers may choose to offer a voluntary buyout option before resorting to layoffs.
Who is Eligible for a Voluntary Buyout Program?
This is up to the company to decide, but many factors often determine who is eligible for the program. Some of these criteria include:
Age: Employers often consider employee ages when designing a voluntary buyout program. For example, employees who are nearing retirement age (or have surpassed it) are often more likely to accept the voluntary separation.
Wages: In some situations, it makes sense to start with the highest-paid employees. This may enable the company to meet financial targets while maintaining a greater headcount.
Tenure: Sometimes companies opt to offer the program to employees with the shortest tenure. This is sometimes referred to as a last in, first out approach. By offering a voluntary buyout to employees with less tenure, employers can preserve the organizational knowledge of those longer-tenured employees. Plus, this approach can help maintain the morale of existing employees.
Performance and/or Skills: Employees with a history of performance issues might accept a voluntary buyout option. Likewise, this may be enticing for employees who no longer possess relevant skills due to business changes.
In some cases, companies may choose to offer the voluntary buyout program to everyone at the company. While this may be an equitable way to approach a voluntary workforce reduction, employers must be prepared to lose valuable employees. Further, there may be more interest than the company anticipated.
Learn more about selection criteria.
Examples of Successful Voluntary Buyout Programs
Many companies have deployed successful voluntary buyout programs. Here are some examples.
Cox Enterprises: Cox implemented a voluntary buyout program in 2024, with 400 employees eligible for the package. The program was developed to reduce staffing and redirect resources, with the ultimate goal of reducing headcount by 5%.
Turner Broadcasting: In 2024, Turner announced a voluntary buyout program for approximately 6% of its U.S.-based employees in an effort to reduce costs at TV channels like CNN, TNT, TBS, and Adult Swim. Employees aged 55 and older who had been with the company at least 10 years were eligible for the program, which provided nine weeks of salary, plus an additional four weeks of salary for each year with the company.
AT&T: In 2021, AT&T initiated a voluntary buyout program for certain employees as part of a restructuring effort. The program offered lump-sum payments based on years of service, along with continued health care benefits for those who elected to participate.
IBM: IBM has implemented several voluntary buyout programs over the years, many of which resulted from restructuring. In 2020, IBM offered a program that included a one-time payment (based on years of service), health care benefits, and outplacement assistance.
Delta Air Lines: In response to COVID-19, Delta offered a voluntary separation program in 2020. The program was designed for employees who were either eligible for retirement or had been with the company for an extended time. It included financial incentives and health care benefits to encourage employees to leave voluntarily.
Why Should Employers Consider a Voluntary Buyout Program?
If managed properly, voluntary buyout programs have many advantages.
Reduce costs: As discussed previously, voluntary buyout programs can lower labor costs by reducing the workforce without resorting to involuntary layoffs. This helps employers strategically manage their budgets while minimizing financial strain.
Better for morale: Contrary to layoffs, which are employer-decided, a voluntary buyout program gives employees the option to exit the organization. While it’s difficult to reduce headcount regardless, voluntary departures are often received more favorably by employees. Plus, it shows that companies are trying to avoid layoffs if possible.
Mitigate legal risk: Layoffs are personal and can understandably bring out painful emotions. By illustrating compassion through voluntary separations, employers reduce the risk of wrongful termination claims.
Eases knowledge transfer: A voluntary buyout program can also be designed in a way that facilitates the transfer of institutional knowledge. Whereas layoffs are often immediate, employee buyouts can have longer timelines to enable process documentation and training.
What are the Disadvantages of a Voluntary Buyout Program?
Any workforce reduction, including a voluntary buyout program, can impact morale, harm the company’s reputation, and introduce legal risk. Depending on the criteria for the program, companies also run the risk of losing employees with valuable company knowledge.
Voluntary buyout programs can also be expensive, especially in situations where employee interest exceeds the employer’s expectations. Alternatively, there may not be enough interest, necessitating an involuntary reduction. Regardless, voluntary buyout programs demonstrate that other alternatives were pursued prior to layoffs.
Despite these disadvantages, voluntary buyout programs may address business needs without requiring layoffs.
Does Onwards HR Help with Voluntary Buyout Programs?
Although voluntary buyout programs are an alternative to reductions in force (RIF) or layoffs, many of the administrative tasks are similar. For example, companies have to decide which employees are eligible for the program, calculate payments based on specific criteria, generate documentation, and collect signatures.
Onwards HR streamlines these offboarding tasks, making voluntary buyout programs easier than ever.