Severance Packages Best Practices Questions

Why does your organization offer severance? Is it to limit legal liability? To protect the employer brand? To maintain a positive relationship with a potential customer? To recruit talent? Or is it because your company values its employees? Organizations offer severance for any one of these reasons and all of these reasons. But the top reason, as revealed in RiseSmart’s 2017 Guide to Severance and Workforce Transition is to project an employee-first culture.

In an increasingly competitive marketplace- where talent is scarce – being an employer of choice means taking care of employees at every stage of their employment with the organization, including as they leave. As former employee sentiment takes on greater importance, and laid-off workers remain in the industry as possible customers, competitors, partners, or even future employees, companies are expanding their severance offerings to involve more of the workforce and to include more benefits than just healthcare and insurance.

Q: Why does your 0rganization offer severance?

Although not the number one reason companies choose to offer severance packages to laid off employees, limiting legal liability is still a strong motivator for many organizations. Getting people moving forward and focused on the future and not sitting at home dwelling on how the company did them wrong, is a solid reason for offering severance that includes benefits such as outplacement.

However, the shift in thinking within organizations is clear. Companies now want to demonstrate their values in a very tangible way. Even as organizations are reducing their workforce, they are looking to keep existing employees engaged, and to retain the valuable remaining talent they have.

These companies are also acutely aware of the need to protect brand reputation. The proliferation and importance of social media and online employer rating websites such as Glassdoor, LinkedIn, and Twitter have given power to the recommendations and recriminations of laid-off workers. As companies are learning, current employee and former employee recommendations and ratings can greatly affect an organization’s ability to hire and retain talent.

Q: Does your organization have a formal severance policy?

Although 87% of the organizations we surveyed confirmed that they had a formal severance policy in place, there was nearly a fifty-fifty split between companies that apply the same severance plan to all eligible employees versus those that vary severance based on a variety of factors, including:

  • Employee level
  • Title
  • Position

Not surprisingly, most organizations take good care of their executive staff upon departure from the company, and clerical, and other non-exempt employees, are offered a far less robust severance package. Whether that outcome is fair, or not, we can expect that executives will have severance agreements written into their offers when they join a company.

There are cases when tenure at a company is taken into consideration. For instance, if your company has had an administrative/clerical person in its employ for a long period of time, you might want to consider offering severance based on special circumstances. To allow for special consideration in the future, consider creating a severance plan with the ability for discretion based on documented circumstances. In addition, when you’re deciding who to offer severance to, you might want to include company tenure as one of your selection criteria. After all, a ten or fifteen-year veteran of your organization has probably not looked for a job in a very long time and may take involuntary separation very personally.

Q: Does your organization have a redeployment program? 

According to the Bureau of Labor Statistics, the Employee Quits Ratio – which is basically how many employees are quitting versus being laid off – has been going up over the last eight years. According to this data, people are quitting versus getting laid off at about a two to one rate. Employers have been feeling the effects of these trends for quite some time. People now feel very empowered to quit because there’s opportunity out there – they’re getting calls, and they’re hearing from friends about opportunities. There’s a trend of rising worker confidence out there that’s putting a lot of pressure on organizations to find ways to retain their existing talent.

In response, more and more companies are looking for ways to create a flexible and engaging workplace. As an HR department hoping to meet goals and KPIs, finding ways to retain valuable talent has become paramount. Just because one area of the business may be restructuring due to business changes, other areas may be hiring. Among the people whose roles are no longer required, there’s a lot of institutional knowledge and cross-skills that can be useful to the organization. In organizations that don’t have a structured redeployment program, there may be a loss of opportunity as employees can’t locate appropriate jobs and hiring managers may not have the skills to look beyond checking every box in the job description.

For redeployment to work, there has to be an organizational agreement that retaining valuable employees is a priority. There has to be an understanding of the value of having background knowledge, understanding the culture and the politics of the company, and knowing how to get things done. If you bring in a new hire, it’s going to take a new person 90 days to six months to obtain that kind of knowledge. The best way that I’ve found to obtain that level of organizational agreement is to have a formal redeployment program in place – generally through a third-party provider and sponsored by your executive team tied into your corporate values

Q: Do you offer outplacement in severance plans? 

Although retirement benefits topped our chart as the number one benefit included in standard severance packages, two others were behind by only three or four percentage points – health benefits continuance or COBRA and outplacement services.

The reasons organizations offer outplacement are very similar to the reasons they offer severance – they realize the importance of maintaining good relationships with all the employees – those that are staying as well as those that are leaving. Those that are leaving may become customers, partners, or you may need to rehire them. Helping transitioning employees focus on their next goal, with the right tools to be successful helps them to make the transition more easily.

Companies that want to create and maintain a positive work culture for those who are staying understand that it’s critical for surviving employees to see that their friends and coworkers are taken care of. We already know that people land new roles faster when they use outplacement, and that’s important for the people who are staying – they don’t have to worry about those who were displaced or feel guilty for having a job.

The increase in engagement, the treatment of the people who are leaving, and the positive image your company develops in the market are all good reasons why organizations offer outplacement.

For those companies still not offering outplacement as part of severance, there is a danger of negative branding and future recruiting challenges resulting from an unhappy population of ex-employees in your community struggling to find new jobs after the reduction in force.

Q: Where do we go from here?

If your organization offers severance, consider why you offer severance. Goals such as improving employee relations, maintaining a positive employer brand, or even limiting liability are all good business reasons to offer a well-rounded, thoughtful severance package to your exiting employees.

If you don’t have a formal severance policy in place, ask yourself, “Why not?” and then work towards formalizing one – your organization will reap the rewards and so will your impacted employees.

If you do have a formal policy, take it off the shelf every once in a while. Review it annually. Make sure that your goals for severance align with your business initiatives, or with compliance reasons, or even, the industry norms that can be found in our Guide.

When you’re looking at your severance policies, evaluate your current career transition solutions. Look at redeployment and outplacement. They both have positive impacts on improving employee relations and protecting your employer brand, and they help with the litigation as well. If you’re not offering those programs, you can start small and expand – possibly with a pilot program.

Finally, don’t forget to monitor your brand during a layoff. Although HR plays a significant role in protecting the brand, most don’t have a mechanism in place to accurately monitor brand sentiment. Make monitoring the employer brand a standard practice in HR, whether there has been a reduction in force, or not. The gap in attention to the power of social media and the potential for damage to the employer brand represents an opportunity for organizations to further protect their reputations and improve their competitive edge.

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