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Severance Plans Weathered the Recession 
 

8/17/2011  By SHRM Online staff 
 
 

A bit of comfort for terminated workers: While companies have been slashing payrolls in recent years, a study finds that they haven’t been trimming their severance packages. Severance and change-in-control plans have survived the 2008-09 recession and tepid recovery fairly intact, according to a study by WorldatWork, an association of total rewards professionals, and Innovative Compensation and Benefits Concepts LLC (ICBC), an HR consulting firm.

The survey was conducted May 18-June 3, 2011, among a random representative sample of WorldatWork members, mostly HR and benefits managers at large North American companies.

Key Findings

The highlights from the survey report, Severance and Change-in-Control Practices 2011, include:

 A formal written severance plan is still maintained by many organizations for the CEO, plus one for key executives and one for everyone else.

Severance amounts have not changed much since 2009, which is probably reflective of companies watching costs more carefully.

Years of service, position, pay level and employment agreement still seem to be the most important determinants of severance status.

One or two weeks’ severance pay per year of service is still provided by most organizations, with many providing a tier of benefits up to the maximum.

• COBRA is subsidized (fully or partially) for all employees by 44 percent of organizaitons, despite the difficult economy.

• Outplacement benefits are provided to all affected employees by nearly half of surveyed employers , while 36 percent provide it on a case-by-case basis, up from 27 percent in 2009.

Tax gross upsthe practice of increasing the amount of a cash payment to offset the tax impact on the individual resulting from the cash payment—continue to decline. Six percent of respondents said they provide full or partial gross ups of their executives’ severance pay, down from 8 percent in 2009. 

Which of the following best describes the coverage of your organization's severance plans (for severance resulting from not-for-cause involuntary terminations unrelated to a merger, acquisition or divestiture)?

 

2009

2011

CEO plan only, no other employees covered (one plan only).

1%

1%

One plan for CEO, one plan for key officers/executives or direct reports to CEO, no other employees covered (2 total plans).

2%

3%

One plan for CEO, one plan for all other employees (2 total plans).

8%

9%

No severance plan.

15%

13%

One plan for CEO, one plan for key officers/executives or direct reports to CEO, one plan for all other employees (3 total plans).

32%

31%

Other.

42%

43%

Source: WorldatWork.

Severance and Change-in-Control Plan Reviews

“One finding that may come as a surprise is that severance and change-in-control plans are being reviewed less frequently by companies today than two years ago,” said Don Lindner, executive compensation practice leader for WorldatWork. “But that doesn’t diminish their importance as employee benefits and tools to ease the job transition,” he noted.

“Because of the size and importance of executive severance and change-in-control plans, annual reviews should be conducted by compensation committees,” advised the study’s author, Bob Jones. “This is best done by making this topic an agenda item that is covered on a regular basis.”

Related Articles:

Health Care Reform Impacts Employment, Severance Agreements, SHRM Online Benefits Discipline, September 2010

Be Cautious of Ruling that Severance Pay Isn't Subject to FICA, SHRM Online Compensation Discipline, April 2010

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