Employee Buyout (EBO)
Candlefocus EditorWhen an employer offers an employee buyout, select employees are offered a voluntary severance package. This often includes some form of financial compensation — such as a lump-sum payment, extended salary, or retirement plan contributions — and certain benefits, such as access to health care or extended amount of vacation time. The buyout package usually provides a fixed period in which the compensation and benefits are paid.
The primary purpose of the employee buyout is to allow employers to reduce their overall employee headcount and associated costs — including salaries, healthcare, retirement contributions, and other overhead. In addition to reducing expenses, an EBO may also help expedite a workforce reduction within a certain period of time, rather than a drawn-out process of layoffs.
An employee buyout can also refer to when employees take over the company they work for by buying a majority stake, rather than a complete buyout. In this instance, the employees take control of the company and are responsible for hiring and managing staff, long-term decisions of the business, and overall success.
Employee buyouts are often advantageous to all parties involved. Employees receive a financial bonus, while employers are able to reduce expenses and expedite a workforce reduction. In some cases, retirement plan contributions via EBOs also benefit employees and employers, as it allows the company to contribute a significant sum to the employee's pension.
Though EBOs can be beneficial in some cases, employers should ensure that an employee buyout is the most feasible option for their current situation, and consider the potential consequences of offering voluntary severance packages to the company. Employers should also plan for how their workforce will be reduced, and how operations will continue during and after the buyout, if applicable.