Definition
The term voluntary exit incentive program refers to payments made to qualifying employees as part of a severance agreement. Exit incentives are used when a company believes it has an excess of employees, and wishes to lower headcount in the near term.
Explanation
Also known as voluntary buyouts, voluntary exit incentive programs are used by companies that believe they have a surplus of employees; however, management does not want to select the employees to dismiss. Voluntary exit incentive programs allow employees to self-select themselves for termination. In exchange for agreeing to leave the company, the volunteer receives some form of monetary compensation.
Employees usually have to pass an eligibility test to qualify for an exit incentive. For example, a program might only apply to full time employees that have five or more years of service. The amount of incentive paid is normally a function of the employee's age and / or years of service. Programs will also specify a window of opportunity within which an employee can take advantage of this offer.
For example, a program might state it will pay an exit incentive of two weeks of pay for every year of service to all employees that voluntarily separate from the company in the next ninety days. Employees accepting exit incentives may also be eligible for an extension of their medical benefits programs or payment of accrued vacation time.
Critics of these programs point out employees that take advantage of these programs are usually the employees the company wants to retain. They would argue that employees with valuable skills know they can easily find work elsewhere, and will quickly volunteer to leave the company.
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