Wring a Buyout for All It's Worth


The financial industry is in a tough spot. Mergers, acquisitions and divestitures are heating up, involving companies such as Bank of America (STOCK QUOTE: BAC), Merrill Lynch (STOCK QUOTE: MER) and American International Group (STOCK QUOTE: AIG). Even more can be expected, according to TheStreet's Jim Cramer. That may lead to a sharp increase in employee buyouts on Wall Street as companies trim their workforces.

Buyouts are a mixed blessing. For some, a buyout can be an opportunity to change careers, retire early or jump ship before getting laid off. For others, it can represent a major financial setback. If your company is offering you a buyout, here are a few things to consider before making your decision:

Were you about to leave?

The same buyout package might be a windfall to one employee but a major setback to another. If you are just a few years away from retirement and have little outstanding debt, accepting the offer may be a chance to walk away early. On the other hand, if you have a mortgage and a pile of other debt and weren't planning to retire for another five years or more, the buyout may not be enough to keep you afloat.

Even if you weren't planning on resigning, a buyout may provide a better severance package than a layoff would. If you don't think you'd survive a round of layoffs, taking the buyout may be in your best interest. (To avoid a layoff, possess a unique set of skills that would protect you. If you've been repeatedly passed over for promotions or raises, start thinking about your future.) In fact, a buyout may be the right move even if you think you are safe from layoffs. If other companies in your industry are in better shape than your firm, this may be a lucrative opportunity to take your marketable skills to your next job. Make sure your offer doesn't include a non-compete clause, which would make it difficult, if not impossible, to work for rivals in the same industry.

Is it the best deal possible?

In a typical buyout, you might have as much as a couple months to provide your final answer. Take this opportunity to ask questions about the buyout and negotiate the best possible deal. What were the terms of buyout offers in the past? Is the company planning to offer a follow-up package that may have sweeter terms? In many instances, companies aren't required to offer any additional information unless you ask for it. To be safe, keep a written record of all of your questions and the company's answers.

One of the major negotiating points during buyouts is health insurance. Under the terms of COBRA, a company that has 20 or more employees must offer departing employees the opportunity to pay to continue their existing health coverage. You may be able to get your company to pick up the tab for a few extra months as part of a buyout.

You should also ask whether your departure date would be flexible. This can have an impact on whether you qualify for any bonuses, pension or other employee benefits. Taking a big buyout package at the end of the year could incur hefty taxes the following spring. Delaying until the New Year or receiving installment payments in lieu of a lump sum may reduce your tax liability. And don't be afraid to ask coworkers what terms they got. It's not always easy talking about money, but those conversations may help you get the best terms available.

Will you be OK?

Regardless of whether it's a windfall or setback, a buyout offer will likely have a major impact on your financial plan. Consider: What will this do to your retirement goals? Will you need to keep working full time or could you manage on a part-time salary? Run the terms and conditions by your financial planner to see if the buyout meshes with your financial needs. You may also want to meet with a lawyer to make sure you aren't limiting your future options due to a non-compete clause or other restrictions.

It's difficult to know for sure what life after a buyout will bring. If you see corporate cutbacks coming your way, negotiating the best possible deal with your current employer will make a big difference for your financial future.

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