Greener parachutes - severence pay for laid-off workers increased in 1997

American Demographics, June, 1998 by Catherine McGrath

Getting laid off was a little less unpleasant in 1997 than in previous years. Downsized workers received an average of nearly 22 weeks of severance pay, a 70 percent increase over 1996, according to Challenger, Gray & Christmas.

Last year's severance packages were the most generous since the firm started tracking the data in 1991. But the increase that took place in 1997 came on the heels of three years of declines. Firms offered an average of 17 weeks of severance in 1993, 15 weeks in 1994 and 1995, and 13 weeks in 1996.

John Challenger, executive vice president of Challenger, Gray & Christmas, traces this jump in the size of severance packages to more high-level executives being downsized and an improvement in the standard severance deal for lower-level employees. But there is another motivation to treat downsized employees well. Generous packages help maintain the good will of remaining staff who are friends with those who are leaving.

And for many, severance is set long before they get the pink slip. Some executives, following the "free agent" mantra gaining popularity in the business world, negotiate lucrative deals before joining a company. For more junior employees, companies know that they risk losing their skilled workers to other firms unless they offer reasonable compensation and severance packages. With record low unemployment and decreased employee loyalty, these workers can easily be lured away.

But even big severance deals can have a downside. Challenger warns that long severance periods can breed complacency in displaced workers. Since they still have cash flowing in, they delay looking for new employment and make the task of finding their next job more difficult.

For more information about the survey, contact John Challenger at Challenger, Gray & Christmas, Inc., 50 South Wacker Drive, Chicago, IL 60606; telephone (312) 332-5790.