Weakening Economy Forces Employers To Examine Their Severance Policies - Brief Article

HR Magazine, August, 2001 by Bill Leonard

The weakening U.S. economy has forced many employers to reduce their workforces and to dust off and examine their severance policies.

To help employers get a better picture of severance and retention practices, Unifi Network of Westport, Conn., a subsidiary of PricewaterhouseCoopers, conducted a recent survey of employers located throughout the United States. Of the nearly 120 companies responding to the survey, approximately 50 percent have downsized their workforces within the past 18 months. And among the responding companies that have downsized, 50 percent report that they plan to cut their staffs further within the next two years.

"This survey points to a unique trend in today's economic climate--additional employee layoffs at companies that have previously experienced one initial round of layoffs," says Todd McGovern, a director in Unifi Network's compensation practice. "Employees need to educate themselves about their company's severance policies so that they are prepared financially if their jobs are cut."

Employers too should re-examine their policies and make sure that severance packages are fair and equitable for all employees, the report states. The survey found that 88 percent of the responding employers did have a formal severance policy in place. The survey revealed that severance eligibility typically extends to all positions in an organization--from senior management to non-exempt staff.

More than three-quarters of the employers with formal severance policies also had length-of-service requirements for employees to qualify to receive severance pay or benefits. The most prevalent service requirement among the respondents was 12 months, closely followed by six months. Typically, senior-level managers were exempt from any service requirements.

More than three-quarters of the survey respondents base some or all of severance pay on the years of service with the organization--usually one month of pay for every year the employee worked with the company. Not all employers use length of service to calculate severance payments; some companies also use formulas based on salary grades and increments.