The Layoff Payoff - Company Operations

Industry Standard, The, July 2, 2001 by Elizabeth Wasserman, Lessley Anderson

AS JOB LOSSES MOUNT, SEVERANCE HAS BECOME THE HOT TOPIC IN CUBICLELAND. HOW GREEN IS YOUR PARACHUTE?

When SpinRecords, a San Diego online music company, shut down in October, 40 employees lost their jobs. Among them was managing editor Craig Combs, who had logged 16 months at the site. Like the others, he received no severance and was even denied pay for his unused vacation time and his final two weeks of work. But at least he'll be able to clean up at home: At a company auction he paid $20 for a used vacuum cleaner. "They both suck," he says of his new purchase and his former employer.

As tech companies slash their payrolls -- Nortel Networks says it's sacking 10,000 more employees (on top of 20,000 previously announced), and security software firm Entrust recently dumped 400 -- the question for many on the front lines isn't "How bad are the layoffs?" but rather "How good is the severance package?" Data about severance has long been scant. But with some 1 million layoffs in the national economy since the start of the downturn in spring 2000, according to outplacement firm Challenger, Gray and Christmas -- and with 41 percent of those in 2001 coming from tech firms -- there's a renewed effort to understand the ins and outs of job severance.

Into this void come two new studies revealing some surprising trends about the layoff payoff. The research shows that the size of your parachute depends on where you work. Big corporations tend to pay a middle manager with two years of experience about eight weeks of severance, according to a survey of 114 Fortune 500 companies conducted by Unifi Network, a subsidiary of PricewaterhouseCoopers. [See chart at right.] Most ailing Net companies fall way short of that mark. Internet service provider PSINet is typical: The firm gave four weeks in its April round of layoffs. Yet curiously, the largest dot-com firms -- from eBay, eTrade and Travelocity.com to the Walt Disney Internet Group -- are the most generous, doling out a median of 14 weeks of severance to two-year managers, according to a separate survey of 24 prominent Web businesses by Unifi and The Standard. Likewise for nonmanagerial professionals, who commanded a median of 12 weeks of severance at the big dot-coms but just six weeks at Fortune 500 firms. (At The Standard, which has laid off workers this year, a manager with two years on the job received eight weeks of severance.)

Then there are the Craig Combs of the world, the thousands of dot-com employees who lost their jobs and didn't receive a penny. Most of them worked for the 200 or so dot-coms that ran out of money; many of those firms plunged into bankruptcy.

"We've all heard the stories of people being given equipment as exit packages," said Judith Fischer, managing director of Executive Compensation Advisory Services. "The real obvious difference between new-economy and old-economy companies is, in the end, does the new-economy have money left in the till to pay the severance?"

Internet companies tend to eschew the practices that established corporations use to make downsizing more gradual and humane. Dot-coms are less likely to have written severance policies and more likely to lay off big chunks of staff, pay severance in a lump sum so it can be taken as a charge in a single quarter, and avoid buyout offers and extending benefits.

"They called us in as a group and said, 'You'll be learning from your department head today if you're in or out,"' says a worker who was laid off from Barnesandnoble.com earlier this year with seven weeks of severance after working at the company for four years. "So you'd see a person walking by with flattened boxes and know they'd be going. It was a bad way to handle it."

Nobody understands the harsh realities of the Internet job market better than Strati Papageorge. A marketing associate at financial newswire Bridge Information Systems, Papageorge was laid off in January and told he would receive in the mail a severance check covering two weeks of his salary. Instead, he got a notice that his former employer had filed for bankruptcy -- and that he could make a claim for what he was owed. Recalls Papageorge: "I called the HR director, and said, 'Are you kidding me?"'

No kidding. Papageorge also stands little chance of seeing any money. First the attorneys and trustees take their slice of the remaining assets. Then back taxes are paid. Employee claims come third, followed by creditors. "The issues are, 'Say goodbye [to severance],' grimly jokes Cliff Palefsky, a San Francisco labor attorney who frequently gets calls from people owed severance they'll likely never get.

No one knows exactly how many people get the boot without a severance check to soften the blow, but some recruiters report that the percentage is high. "Eighty-seven percent of our candidates are coming from companies that are laying off or downsizing," says Steven Pope, a recruiter with the New York-based firm GT Solutions. "I'd say that 60 percent were laid off without severance."