Why Companies Are Paying You to Quit

Not too long ago, there was this idea that if you wanted job security, you'd go into tech. I mean, there used to be this joke that you could just, you know, take a job inside a big tech company and hide for years and never be spotted again, that there was just so many people, there was so much overlap that you'd be okay, those days are over. Our colleague Chip Cutter covers workplace and management, and last week, a big announcement caught his eye. Microsoft revealing major cuts to its workforce as it restructures for massive investments in AI. Microsoft is offering buyouts to 60,000 workers. This morning, Microsoft adding to concerns about the effect artificial intelligence will have on jobs across the economy. This is a quarter of Microsoft staff. This is also Microsoft's first and largest voluntary buyout offer in its history. So this is big. But it's the equivalent of like inviting a football stadium full of people to leave the company. That's right. 60,000 is a lot of people. It's bigger than what many companies even are. Microsoft's buyout program marks a new trend in corporate America to avoid disruptive layoffs while still shaving costs, some high profile companies see paying employees to leave as the answer. We're seeing some of the biggest tech providers do them. We're seeing Google and Skydance, the entertainment giant. I mean, I think it's high profile companies, companies that had been growing really fast offering this. Can you walk me through the mechanics of this like are buyouts just layoffs with better branding? These have a little bit better optics, I would say, right? These do feel like a little bit more worker friendly than just a layoff, but the end result is the same. There are fewer jobs. There are fewer roles inside this company that headcount is going to be smaller. It's going to lower a company's costs down the road if there are fewer people inside an organization. But I think it's a signal. It's a signal to everyone that workforces are going to change. Welcome to the journal, our show about money, business, and power. I'm Imani Moise, it's Wednesday, November 4th. Coming up on the show, buyouts are on the rise. Don't call them layoffs. Corporate America is facing a big question today. What size should companies be? It's interesting to me talking to a lot of executives, kind of in these more private closed door meetings, where many will say, if we were starting our company from scratch today, we would not have nearly as many people. I think executives really believe this, that these companies are bloated, that they have too many layers, that if they were doing this all over again, this isn't what the company would look like. We've heard some executives be upfront. I mean, Metta's chief financial officer this spring said, we don't know what the ideal size of an organization should be. I think that reflects what I've heard from a lot of other executives too. And the major reason for all this uncertainty is that there are still a lot of unknowns surrounding how AI will impact the way companies work. We don't know what work AI will be able to seriously do going forward. We don't know what roles are going to be redundant, and so it's just a lot of kind of guessing at the moment. Over the past year, it seemed that the AI-fueled jobs apocalypse was upon us. There's been sort of a drip, drip, drip of layoffs across corporate America. There were mass layoffs at companies like Amazon, Metta, Oracle, and Target. Hundreds of thousands of jobs evaporated, and the public backlash was swift. Companies have oftentimes been careful to say those aren't all related to AI, but it's hard for people to think they're not connected. Companies are spending billions of dollars on this technology. They need to cut costs somewhere, and often that means cutting people. And I could see why a buyout program would have better optics, as you say, than layoffs, but I don't think it's neutral. Is there still an impact on morale? Absolutely an impact on morale. You could be watching as your longtime colleague walks out the door. This is a loss of institutional knowledge. It might mean that you're now somehow taking on some of their work. I mean, whenever people leave an organization, it's disruptive. So I think that's what a lot of companies are trying to deal with. After a layoff, those that remain at a company really oftentimes feel kind of scarred by this. This whole idea of survivor's guilt that what do you do after you go through something like that that can be really jarring to a workplace? But the same is true with buyouts, because we're going to see talented people leave this organization, and the rest of the employees will have to sort of cope, or the work could change, it just changes hard, and this is part of that. Microsoft's big buyout program isn't necessarily about AI replacing jobs. It has more to do with the increase in the amount of AI spending by the company. According to a recent earnings report, Microsoft expects to spend $170 billion dollars this calendar year, primarily on AI infrastructure. Using Headcount, we'll give the company more money for data centers, chips, and development. The investors are watching this. There's pressure from Wall Street. I mean, that is very clear in their earnings when they talk about this. They certainly have a lot of demand from customers for more AI in their products. You can see this then leads to more demand for data centers and for the technology that powers all this. And so, yes, they're kind of being up front with investors about, here's all that we're having to do to spend on this to meet this demand. Even if these buyouts, even if there's not something in a memo that says these are related to AI, of course, you look at the big picture and they just have to finance and spend to invest in this technology, which is expensive, and which requires just a lot of resources right now. As at the end of June, Microsoft had about 223,000 employees. Last week's buyout offer went to 60,000 workers around the world. And to be clear, Microsoft isn't expecting all those people to leave. Only a fraction will likely take it. Employees will have some time to think about it, the deadlines in early December. And if they opt in, their last day as Microsoft employees will be New Year's Eve. This kind of program is new for Microsoft. But elsewhere in corporate America, buyouts are often based on typical severance agreements. HR will come up with the plan, it's usually one or two weeks pay for every year of service. And there's usually a cap. So in some cases, it's depending on the level that you're at, it could be that will pay up to six months of your salary or in some cases will pay up to a year of your salary. So that's the sort of cash part of this. There are also typically some considerations for healthcare. Some companies will offer you some additional healthcare for a few months. They might also allow the stock that you have in the company to invest, to hit the next investing date, whatever that might be. Are there any differences in terms of what packages you get for an employee who takes a buyout versus one who gets laid off? They can be similar. I mean, if you're laid off, you might also kind of get the standard severance agreement. But buyouts, they oftentimes are structured, so they have some sweeteners in them. They're meant to be an incentive. They're meant to say, so there's a bit of a carrot here that a company is dangling in front of workers being like, hey, go ahead and take this buyout. You can do it on your terms, and we're offering attractive severance agreements. And you can go from there. So it really will vary company by company, but the idea with buyouts is that this is something that would be appealing to people. In an ideal world, buyouts could be a win-win. Employees walking away with money while the company reduces headcount. But there is some danger here. It's possible that not enough employees opt in. Typically, when companies don't get enough takers for something like this, they then will resort to job cuts. So we don't know what Microsoft is going to do here and don't want to sort of predict. But I've talked to so many people who have been through this time and time again, and they will say that if they're not enough takers for a voluntary buyout, that's when you get to the involuntary stuff. That's when you get to layoffs. When a company says we're doing buyouts, it's a sign that they are serious about looking to cut costs. They know the workforce is changing, and it can be a sign that if they don't get the amount of people they need for this, they might have to take other steps. So how does Microsoft make sure that this buyout works for them? That's next. Buyouts tend to attract two types of employees. The first type is close to the end of their career. These are people that might have said retirement was a few years off. They get an offer like this and they realize, maybe I should just go for it now. The other people who tend to take this are people who have a lot of options. So if you're an employee who feels like you can easily get a job somewhere else, you might say, I'm going to take this buyout, I'll take this pot of cash, and then just get hired somewhere else, double dip, and I'll be better off for it. I would imagine that people who have options also tend to be higher performers. How do you prevent a buyout program from becoming a talent retention issue? And absolutely can become one part of the ways companies deal with this is they have certain carveouts where you may not offer it to certain employees, certain divisions of the company. Typically then there are ways for HR to get involved and to offer sweetener or to sort of reject people's requests to take a buyout. I mean, there are ways that companies can go about this so they don't actually let certain people walk out the door, those they see as most critical to whatever they're trying to do. When it designed the buyout program, Microsoft planned for this. The company excluded certain groups of employees in order to prevent them from jumping ship. So for example, people in its commercial organization, so think like salespeople, they were excluded some people from marketing certain engineers and so the ways company structure this, they don't want to lose their most critical employees. They don't want to lose people who are working on cutting edge technologies. The goal here is to try to offer this to people where they feel like they could do without some of these roles. But we just know how this works. Good people are going to leave, talented people inside these organizations are going to be accepted for this buyout and then Microsoft and the teams that remain will have to figure out sort of what to do next. For a large buyout program though, the big concern for companies isn't that too many employees will take the package, is that not enough will, especially in a soft labor market. This actually isn't the first time that Microsoft has tried to shed employees this year. In April, it offered a voluntary retirement program to around 8600 employees, more than 30% accepted the offer. And that actually had like a even sweeter sort of severance agreement with it. It was even more kind of enhanced and that was actually really geared towards those who were even closer to retirement. So we'll have to see who ends up taking this. This time around, Microsoft expects an even smaller share of employees to bite. Acceptance rates at other tech companies that have had mass buyouts hovered around 3 to 7%. HR chiefs are comparing the numbers they're looking at what's happened in similar workforces that other companies and the math tends to be right on this. And so I think if Microsoft's hoping to get about 5% of people to take this, I think we should assume that they'll probably get that. Typically, when companies can't reach their goals with a buyout program, layoffs are the next step. And Microsoft has been transparent in saying the company doesn't know how this will shake out. In a memo, Microsoft's chief people officer wrote, quote, will learn from it. Their HR chief told employees this that she wanted to experiment. She realizes that workforces are changing right now. Companies are changing. So the thought is, let's try this, let's see what happens. But if there's so much uncertainty in the market right now, why do buyouts now? Why not just hang on to your people until you figure out what's going on? I mean, there's just so much change happening right now. Companies can't afford just to just hold still. I mean, that's what some would argue. Companies are measured on terms like revenue per employee. One way to boost a metric like revenue per employee is to have fewer employees. There's also just this feeling that the AI era is going to lead to new types of roles inside companies and that we might need a different mix of people, even if the headcount stays the same. We might need a different types of employees inside our organization. So I think the idea that companies just wait until this all gets settled would seem impossible to many of them. If you're not Microsoft's buyout experiment, is it success? You can bet that other companies will be taking notes. Microsoft is a company that a lot of people pay attention to. And so when Microsoft goes the buyout route, you can imagine many other HR chiefs in all sorts of industries are thinking the same. And I think it reflects this moment that there is going to be kind of continuous change inside workplaces. Call it whatever you want, sort of the era of the never ending layoff or the drip, drip, drip of layoffs or whatever it is. That sounds horrifying. It sounds horrifying, but this seems like this is kind of the reality of this moment. And so Microsoft is saying this is an experiment. We'd rather give employees some agency here, give people some choice. And I think there's a number of people who would say we respect that. That at least this is them saying we want fewer roles inside this company. Why don't you raise your hand and tell us whether you want to be the ones to walk out the door. They can leave. They can get some cash, and then companies can figure out what they want from there. That's all for today, Wednesday, November 4th. The journal is a co-production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify, or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.