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Is Your Severance Policy Hurting Your Employer Brand?

Top candidates rely on the public perception of an employer's brand to help guide their decision making when it comes to choosing a job, yet the HR industry tends to focus on branding during the recruitment and hiring processes, and not on the one process where it may matter even more: a reduction in force.

Thursday, July 31, 2014
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Reduction in force is a tough subject to broach. Strategic or economic forces often have to take precedence over the human emotion wrapped up in letting a valued employee go, and approaching them strategically is imperative to not only protecting your transitioning employees, but also your brand.

Imagine an employee on the receiving end of a notification. As is the case with many larger companies, he or she is offered a severance package -- however, that employee is also aware that a friend who was recently let go by a competitor has received a significantly more generous package. If only your company were aware of the competitive landscape, the frustration or anger your impacted employees feel may have been avoided.

A less common scenario, but still something that happens more often than we like to believe, an employee hears from someone who was let go by your company a while ago that the current severance package pales in comparison to what they received. Not only are there potential legal ramifications for nonstandard severance packages, but once the employee starts texting and tweeting their friends, family, and followers in the heat of the moment about their disappointment and anger, all the details will go viral -- and at the very least show up in enough Glassdoor reviews to make sure that your incoming talent thinks twice about their offer letter.

If your severance pay is neither competitive nor consistent, you stand to hurt your impacted employees, your brand, and even the morale of the employees who remain. It comes down to this question: what do you want your employees saying about you when they leave your organization?

Certainly, it is entirely legal to let someone go without a severance package; however, offering a competitive severance package is a critical component of helping your employees make the transition to their next position. Not offering severance may raise more issues than the immediate cost savings is worth.  The long term costs often far outweigh the short term savings.

At the same time you don't want to be too generous with your severance package; as with salary, being a little too competitive may be great for your brand, but terrible for your bottom line.

That is why, as with salary, it is important to benchmark your competitors and peers to understand where on the bell curve your severance policies fall: to find that sweet spot where your offering is slightly ahead of the curve while maintainable in the face of an economically motivated reduction in force.

This raises the question: How do I begin to measure and compare my own company's severance policy?  

It is standard practice to consult a salary survey to understand how your rate of pay measures up across industries, locations and roles. It should stand to reason then, that you should be able to consult a severance survey to receive the same amount of insight and actionable information. Unfortunately, until now, there really have not been many compelling surveys against which U.S. companies could measure their own severance policies and make decisions about next steps.

RiseSmart recently href="http://fluidsurveys.com/surveys/risesmart/severance-survey/">implemented a study on severance and workforce transition for 2014, which has already begun to produce some compelling data.

The majority of our respondents are director-level and above HR professionals from companies across all industries and ranging in size, although more than 40 percent come from companies ranked Fortune 1000 level and above.

Interestingly, the overwhelming majority do not have a formal severance policy in place -- which could mean that there is no standardized plan or that not all employees receive severance pay. Yet the three primary reasons for offering employees a severance package were:          

1.     To take care of employees  

2.     To limit liability

3.     To protect brand reputation

Which is to say, in three different ways:  to protect brand reputation.

Your employees are your brand. They are the ones who make your culture what it is, and they are the ones who provide insight into that culture to their friends, families and connections out in the real world and online.

Just as you focus on taking great care of employees as they are hired and on-boarded, you must also show you continue to value those employees on the way out. This way you create an opportunity to minimize negative feedback surrounding a reduction in force.  To do so competitively may even set you up to receive positive feedback as employees make the transition.

Limiting liability is another way to protect the brand while taking care of employees. If the company is offering non-standard severance packages, employees can sue on the grounds of precedent -- yet the resulting negative PR can easily be avoided by establishing maintainable standards of severance pay and making them clear at the beginning of employment.

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Most employers who participated in the survey to date include other severance benefits in the package along with the severance pay. The top two most commonly offered were outplacement and payment of previously eligible bonuses.

 The majority of the survey participants offer outplacement -- and the few who don't either don't see it as a priority or haven't found a good solution. Outplacement, however, should be a priority for any company wanting to protect its employer brand while taking care of the employees.

Giving the employee access to services that shorten the time to land a new job is an act of goodwill and communicates to the employee that he or she is still valued and allows that employee to depart feeling that they were treated with dignity and respect. It is an act that should genuinely reflect a little bit of brand karma back on the company.

Because a reduction in force can affect the morale of the entire department or organization, many companies also focus attention on the remaining employees in order to retain those who are not impacted. The top two actions that employers take to keep remaining employees are offering retention bonuses and providing more flexibility. Many organizations also offer resiliency training to those remaining, recognizing that employees are probably feeling a wide range of emotions - from relief that they were not impacted, to anger that their colleagues have been let go, to fear that another round may be looming.

These added benefits are not required; however, in order to remain or become a competitive employer of choice, they should be considered standard if they are within the organization's means.

As this survey draws to a close, we'll be able to get an even more detailed picture of how companies are currently using severance pay, outplacement and other benefits to take care of their impacted employees, retain their top talent, limit their liability and, of course, promote and protect a positive employer brand.

We can already draw one very important conclusion from the data: becoming an employer of choice -- publicly maintaining an image of a positive, employee-first culture -- starts from the policy within. Even though it may seem like a number on a piece of paper or a data point on a bell curve of options, it is critical to understand that systematic disregard for the importance of severance can have ramifications that extend into your future talent acquisition and retention.

In other words, it pays to know how much to provide.

Karen Stevens is RiseSmart's vice president of practice strategy.

 

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