Why companies offer buyouts versus layoffs

Microsoft announced earlier this week that it’s offering buyouts to 60,000 employees — about a quarter of its workforce. The company is looking to cut costs and offset investments in AI. Skydance is also making voluntary layoffs.

When comapnies offer buyouts, there are pros and cons compared to traditional layoffs.

In the late 1990s, during the dot-com bubble, Nita Chhinzer was working for a major telecommunications company that went through multiple rounds of voluntary layoffs.

“I would keep putting my hand up and I was like, ‘Can I please get the layoff?’” she said. The timing was right; she wanted to go back to school. “I did not get selected until I was finally in a small office where there was only four of us physically there in a section that held 160 people,” she said. (Yeah, the vibes were … weird.)

Nowadays, Chhinzer is a professor of organizational management at the University of Guelph near Toronto. She said when voluntary layoffs are executed thoughtfully, everyone feels a little less bad.

“If we allow people to opt in it’s almost like we’re shifting the responsibility, saying, ‘we didn’t pick you, you picked to be unemployed,’” Chhinzer said.

Letting employees choose their fate, though, comes with some risks.

“If you offer it, you give up a little bit of control over who’s taking it. Those who can actually go out and find something else to do might be more inclined to take those buyouts,” said Anthony Nyberg, a management professor at the University of South Carolina.

Top talent tends to leave, especially if they think more cuts are coming.

Investors prefer forced layoffs — they like to see more immediate and measurable savings. But Nyberg said those regular layoffs can cost more in the end.

“Layoffs are more likely to be followed by unintended turnover among your higher performers after the layoff,” he said.

Nita Chhinzer at the University of Guelph said she’s seen buyouts become the more popular choice in the last handful of years.

“So that tells me that companies are actually forecasting and looking forward six months or a year,” she said.

Chhinzer said firms are being more proactive about preparing for any storms — or planned investments — that are coming ahead.