After The Deadline at The New York Times: The Economics of Buyouts

New York Times BuildingAs Off the Record readers already know, the deadline for New York Times employees to take voluntary buyouts was last Thursday. This past Monday, executive editor Jill Abramson unveiled a restructured masthead and announced fewer layoffs than anticipated, since more employees had decided to go quietly into that particular good night than expected—including old-timers like columnist Joyce Wadler, classical music editor Jim Oestreich, managing editor John Geddes, assistant managing editor Jim Roberts, and arts and culture editor Jonathan Landman.

Why do people decide to take such offers? Reasons vary, but timing is often key.

“The timing was perfect,” Ms. Wadler, who turned 65 on Jan. 2, told OTR, explaining that she doesn’t have to worry about health insurance now that she qualifies for Medicare. “I own my apartment, I have savings, I don’t have to worry about putting kids through college.”

The time was similarly right for Mr. Oestreich.

“In my case it’s pretty simple: the timing is excellent, given my age (though I’m not necessarily eager to tell the world, or the part of it that doesn’t already know, that I turn 70 in April), and there are projects that I’ve been wanting to get started on,” the soon-to-depart classical music editor wrote in an email to OTR.

Mr. Landman, meanwhile, cited his many years at the paper.

“It’s straightforward. I’ve been around for a million years and had 500 jobs here, and there is nothing else I want to do [at the Times],” he told OTR.

A buyout may be a good option for an aging journalist, but what’s in it for the paper?

One major benefit of offering buyouts is that it insulates companies from charges of ageism, a real risk when most of those leaving are eligible for Social Security.

“Offering a buyout is a hedge against age discrimination lawsuits,” Jeffrey Pfeffer, a professor of organizational behavior at Stanford University who has studied layoffs, told OTR. “Because of that risk, it is oftentimes cheaper for the company to give the employee a lump-sum payment than to open up the possibility of a lawsuit.”

Usually, as part of accepting the buyout, employees forever waive their right to sue, Mr. Pfeffer explained. “Age discrimination is one of the most rapidly growing fields in the legal sector,” he said.

And to be sure, the money is a draw.

“It’s a big chunk of money,” Mr. Landman explained. “I’ve been here for 26 years.”

According to Mr. Landman, the buyout package for non-guild members was two weeks for every year served (up to one year), plus health benefits for the duration of the payout. A guild member who took the buyout told us that her package was three weeks of pay for every year served, up to a total of two years of pay. The Times, Mr. Pfeffer noted, was fairly generous with its buyout package. Offering one week per year worked is more common.

“I reached the max at 52 weeks,” Mr. Landman said, noting that there was pressure for the paper to cut higher newsroom salaries. “There is nowhere higher it can go.”

Buyouts are typically designed to attract more highly paid employees, which helps bring down the company’s expenses. Although a handful of guild employees also took the buyout, those numbers didn’t count toward the necessary newsroom cuts. To count in that tally, takers had to be managers (read: well-paid editors) rather than reporters.

“Obviously, if you are charged with reducing payroll, you will look at the most expensive people,” said Alan Albarran, a professor of media management and economics at the University of North Texas. “Most likely, those with the longest tenure also have the highest salary.”

But what does culling the experienced employees mean for the fate of a company?

“This will sound horrible, and I don’t agree with it, but most companies don’t value experience,” Mr. Pfeffer told OTR. “We live in a society that does not value age and experience.”

And for veteran Times employees who have seen many a downsizing, buyouts have thus far not brought about the end of the world. This is the fourth time in five years that the paper has asked for volunteers as a way to shave expenses. In 2008, the Times cut 100 positions through a combination of buyouts and layoffs.

“You have to keep it in perspective,” Mr. Landman said, explaining that he had worked under many editors, and when each one left, the paper kept on keeping on. “Max Frankel was a great editor, but when he left, the paper got better. Al Siegal was one of the best editors who ever lived, and when he left, the paper got better.”

The other main benefit of offering buyouts, according to Mr. Pfeffer, is that it culls the willing.

“It has a good sorting effect,” Mr. Pfeffer said, explaining that with layoffs, employees have less of a sense of control in deciding their fate, which is not good for company morale. Mr. Pfeffer likened buyouts to an overbooked plane. By offering incentives such as a $200 voucher and a hotel room for passengers to get bumped, passengers are able to decide whether they would rather take the cash or take the plane.

But of course, Mr Pfeffer cautions, getting rid of employees seldom solves underlying problems with business models. He likened buyouts and layoffs to codeine and Oxycontin—they dull the pain but don’t cure the disease. On the other hand, in this media climate, we need all the pain relief we can get.