General Motors will offer a voluntary buyout to a majority of its U.S.-based white-collar employees, CNBC and other news sources have reported. This comes on the heels of GM's recent announcement that it would terminate about 500 salaried positions globally.
The GM buyout offer could be the first of many similar offers to come as large employers continue to announce layoffs.
If your client receives a buyout offer, here are some things to consider as you help them decide how to proceed.
Review Your Client's Situation
If your client even feels there is a chance their employer might look to reduce their workforce, it makes sense to look at your client's financial situation in the event of a possible job loss. This review should include:
- The client's age, marital status and the ages of any children.
- Any other sources of income the client has. This can include income from a working spouse, income from investments or income from a side hustle.
- Their source of health insurance and any options if they are laid off, including a spouse's employer plan.
- Take stock of all company retirement plans such as a 401(k), pension or nonqualified plan.
- Does your client have any options or other stock-based compensation? What is the vesting status, and what are the exercise rules?
- Cash and investments, both in taxable and in retirement accounts.
- Their monthly spending.
- The state of their emergency fund.
- Their interests and career prospects. What would they do in the event of a job loss? Look for another job? Start a business? Retire?
Every client is a bit different, and there may be other important aspects of their financial situation to consider.
We saw big layoffs in recent months, so the GM and any future buyout announcements should not come as a surprise. This is a logical topic for your next client meeting for those who could be at risk.
The First Offer May Be the Best Offer
Not all corporate voluntary buyout offers are the same, and in GM's case, the company seems to be casting a wide net in hopes of getting a large number of employees to accept the offer.
Quite often, an initial voluntary buyout offer will be the best offer your client will receive from their employer. If the company doesn't get the needed number of employees to take the buyout and needs to reduce its workforce even further, the next round may or may not be voluntary. And the separation package likely will not be as generous.
Sadly, this happened a number of years ago when a friend was offered a decent buyout package by a major local employer but decided not to take it. About a year later, he was let go, and the severance package was not nearly as generous as the terms of the original voluntary buyout offer.
Evaluate the Buyout Package
If your client receives a buyout offer from their employer, be sure to review it carefully with your client. To incentivize employees to take the buyout and leave the company, many buyout offers are "sweetened." The employer might offer enhanced compensation above their normal severance benefits if an employee was terminated from their position under normal circumstances.
As many buyout packages are designed to entice older, longer tenured employees to leave the company, some packages may include accelerated pension benefits and enhanced company medical coverage. Both can serve as bridges into retirement for clients nearing Social Security and Medicare eligibility.
If your client has stock options or other types of equity compensation from their employer, some packages may offer greater flexibility in exercising these options or the ability to take this compensation versus the normal vesting for these benefits.
Additionally, some buyouts may offer outplacement and other assistance to help those who take the buyout in their search for a new position.
Your client will be looking to you to help them evaluate what the buyout means to them on a financial basis. This can often be the hardest part of evaluating a buyout.
