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July 13, 2001
Cash Severance Payments On the Wane
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A new survey from a management-consulting firm shows that the cash severance payments made so far this year to terminated employees have declined by up to 20 percent from severance packages awarded in 1997.
Here's the breakdown from Manchester Inc., a unit of Modis Professional Services:
- The average maximum severance payment for non-exempt employees declined 20 percent in 2001, to an average maximum of 24 weeks from 30 weeks in 1997. (The average maximum severance payment is the average of the maximum severance payments of all participating companies that have maximum severance policies.)
- The average maximum severance payment for middle managers have declined 15 percent in 2001, to an average maximum of 28 weeks from 33 weeks in 1997.
- The average maximum severance payment for senior-level executives have declined 12 percent from 1997, to an average maximum of 37 weeks of severance pay, from an average maximum of 42 weeks of severance in 1997.
Still, companies have enhanced certain other severance benefits, according to Manchester.
More organizations are providing outplacement assistance, health insurance, and access to Employee Assistance Programs. In addition, more organizations allow employees to keep the full amount of their severance regardless of how quickly they find other jobs. The percentage went from 72 in 1997 to 74 percent in 2001.
The survey reflects responses from 178 organizations nationwide, according to Manchester, which also reported:
-- Health insurance (in addition to COBRA) is the most popular severance benefit organizations are providing to employees: senior-level executives (80 percent of organizations), middle managers (75 percent), and front-line employees (76 percent).
-- Outplacement assistance is the second most popular severance benefit organizations are providing to employees: senior-level executives (77 percent), middle managers (70 percent), and front-line employees (55 percent).
-- The pharmaceutical/biotechnology industry granted the most generous severance benefits to employees in 2001, displacing the chemical industry, which had awarded the most generous severance benefits in 1997.
-- The average severance calculation formula for officers and senior-level executives fell to 1.7 weeks of severance per year of service, from 2 weeks of severance per year of service in 1997. The median severance calculation formula for officers and senior-level executives remained at 2 weeks of severance per year of service.
-- The average severance calculation formula for middle managers rose slightly in 2001, to 1.7 weeks of severance per year of service, from 1.6 weeks of severance per year of service in 1997. The median severance calculation formula for middle managers rose to 2 weeks of severance per year of service in 2001, from 1.5 weeks of severance.
-- The average and median severance calculation formulas for non-exempt employees remained the same in 2001 as in 1997 -- an average of 1.4 weeks of severance per year of service, and a median of 1 week of severance per year of service.
Why Less Cash?
Manchester said it uncovered a number of reasons for the decline of cash payments in severance packages.
For one, "displacements" have simply become too common. Many employers have restructured their work forces in one way or another during the past three decades, and as a result, terminations have lost some of their stigma for organizations and employees alike.
In addition, severance policies are a reflection of the prevailing economic climate as well as an organization's social conscience. In an economy with a relatively low unemployment rate (4.5 percent in June) displaced employees are generally requiring less time to find new jobs than in an economy with a higher unemployment rate.
Finally, many employers are providing more advance notice of terminations to employees. More organizations are also giving employees "work-through" notifications, and awarding cash bonuses to those who work up until the "work-through separation date, in addition to receiving their full severance packages.