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Studying Severance
It almost seems redundant to note that layoffs continue to rise. (Heck, even golden Google announced it would lay off 200 workers last week.) But, even with today's woeful economic conditions, some recently released studies point out that many employers are resorting to a kinder, gentler strategy when letting employees go. And the experts behind those reports say that such a strategy makes sense because a critical part of the severance process is that, if you do it poorly, the damage could run deep, hurting a company both internally right now, and later externally, when it comes time to restock talent. One major severance study, released Monday by Woodcliff Lake, N.J.-based talent-management provider Lee Hecht Harrison, found that two-thirds (65 percent) of the responding employers not only maintained their severance at the same level in 2008, but nearly one-fifth (19 percent) made it even more generous. That statistic, says Rob Saam, senior vice president and leader of the firm's Career Transition practice, was the most surprising finding in LHH's Severance & Separation Practices Benchmark Study 2008-2009. The survey, conducted every three years, polled 1,072 human resource executives either through the mail or online. "Those employers realize the value of severance in maintaining a reputation as an employer of choice," Saam says. In a related survey released last month, Hewitt Associates, the global human resources consulting and outsourcing company based in Lincolnshire, Ill., conducted a survey of 228 large U.S. companies representing 4.5 million employees. Hewitt found that more than 80 percent of employers made layoffs in the past 24 months, and nearly half (45 percent) intend to make further reductions in the next 12 months. Yet, according to Hewitt's Lori Wisper, senior compensation consultant, the good news for affected employees was that severance programs have, for now, remained virtually unchanged by the economic downturn. More than half (51 percent) of companies surveyed offer a standard one-to-two weeks of pay for every year of service, and another third (33 percent) vary their payouts based on a formula that typically combines years of service, salary level and/or grade. In addition to cash payments, Hewitt found that most companies provide at least one benefit after separation, which may include healthcare coverage (the most prevalent benefit offered), retirement benefits, disability benefits, financial assistance or life insurance. Nearly three-quarters (72 percent) of the companies also provide outplacement assistance to displaced employees. "Even with employers' cost-cutting efforts, severance programs have remained largely untouched," Wisper says, adding that severance benefits primarily are viewed as a way to maintain the good will of employees -- both those laid off and those remaining. A third recent study, from Philadelphia-based consultancy Hay Group, also confirmed the trend of more -- not less -- generous severance policies in 2008. According to David Wise, senior consultant in the executive compensation practice at Hay Group, many companies reconsidered their severance programs in 2008. The most interesting -- and perhaps most telling -- finding from the group's severance policy survey, he says, was that nearly two-fifths of 180 surveyed companies either made or considered changes to their severance programs in the last year. "This is a significant finding, as most companies do not look to update their severance programs more often than every four or five years," he says, "In the last year alone, 15 percent of surveyed companies made changes, while another 22 percent considered them. Turbulent times drive a renewed focus on severance." Wise says Hay's survey also found that many of these companies looked to increase -- rather than decrease -- their severance benefits. While companies were undoubtedly forced to be more cost-conscious in the past year, four of 10 (39 percent) considered making their programs more generous. "This suggests that companies with less competitive severance programs understand that having a population of disgruntled former employees may cost the company more than the potential cost savings of reduced benefits is worth," Wise says. "In other words, there's a cost to treating people unfairly." Another key finding from the LHH survey demonstrates how today's employers are giving severance a boost. In 2008, two-thirds (67 percent) of organizations provided outplacement to all officers, senior executives and executives. In 2001, another recessionary year, only half (53 percent) of employers provided outplacement to that group, Saam says. In addition, in 2008, about half of surveyed organizations provided outplacement to all professionals and administrative employees, he says. As for the outplacement services provided, Saam says that eight of 10 (82 percent) companies said a combination of personal support and technology in an outplacement program was most important. "They know that people who lose their jobs need that personal support too," Saam says. As the dynamic between employers and workers continues to evolve, providing clear and fair severance policies and practices is one strong way to help protect its employer brand, he says. With more people changing jobs frequently, and oftentimes returning to previous employers, clear and consistent severance practices can help to protect and maintain relationships with talent that may return to an organization one day, he says. "Our severance study shows that organizations understand the value of clear and consistent severance practices," Saam says. "It's not just about getting through the hard times, but also what will be the long-term effect on the organization." Despite the positive news about severance in 2008, the situation could -- and probably will -- change, if economic pressures on employers continue during 2009, based on the Hewitt numbers. "If the economy continues to worsen, and companies continue to look for additional ways to lower costs, those benefits -- like many others -- are at risk of being cut back," says Hewitt's Wisper. According to Hewitt's survey, 20 percent of companies plan to make changes to their severance plans in 2009, nearly one-third (31 percent) are unsure, and the rest are not making changes. Of those making changes, 43 percent plan to reduce cash payments, and one in five plans to reduce benefits. Wisper says HR executives would be wise to review their organization's severance policies. "Look at your plans and make sure they are as effective as they can be in terms of business objectives," she says. "Severance is about providing a bridge. Most importantly, it's important to make employees feel at least neutral about the fact they are being severed. Of course, you need to look at the costs. But seeing severance only as a way to cut costs is being very short-sighted." She says the way an organization executes severance plans can be critical, especially in training managers to better communicate with their employees about these programs. "Severance happened more in a 'cloak and dagger' manner in the past," she says. "But today, HR needs to step up. When times are like this, it's more important for them to play a key, very visible role." This year, says Hay Group's Wise, severance will be an issue to watch as legislative pressure could increase on employers that are considering a reduction in their current packages. "It's very difficult to balance the high cost of severance with the need to treat people fairly," he says. "To me, the most interesting thing is that not everyone is dialing back on their severance policies, because treating people fairly is even more important in a down economy." March 30, 2009 Copyright 2009© LRP Publications |
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