Amid Global Recession, Severance Seen as Strategic Tool

By Stephen Miller Feb 23, 2009
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Understanding how severance practices vary by country is a critical component of an effective global workforce strategy, more so now than ever, given the worldwide economic slowdown, according to Severance Practices Around the World, a report issued by global consultants Right Management.

"The fast-changing and demanding global market is placing increased pressure on companies to compete more effectively," says Douglas J. Matthews, president and chief operating officer of Right Management. "The subsequent result may be frequent restructuring, downsizing or cutbacks. And when those initiatives are implemented, departing employees need to be supported with severance practices that are aligned with the company's sense of corporate responsibility and values."

The global study, conducted across 28 countries in the summer of 2008, drew more than 1,500 responses from HR professionals and senior managers responsible for making severance decisions. Key findings:

Severance Policy

Across all regions, severance and termination policies are governed primarily by a combination of company policy and local/national law (62 percent).

In the event of employee termination, most companies (63 percent) are required by law to give a certain amount of advance notification to the employee.

Just over half (58 percent) of those surveyed said their company had a formal, written severance policy.

Eligibility for severance differs by region, with over half of companies in the Americas (54 percent) having no minimum requirement and far smaller percentage of companies in Europe (32 percent) and Asia Pacific (34 percent) saying the same.

Severance Calculation

Top executives earn the most severance per year of service, whether they are separated voluntarily (receiving on average 3.39 weeks of severance per year) or separated involuntarily (3.52 weeks per year).

Regardless of position or type of separation, severance is most frequently offered throughout the world as a lump-sum payment.

More than half (56 percent) of the companies surveyed put a cap on the severance calculation.

Benefits

Regardless of employee level, the most common benefits included in a severance package are assistance programs (like outplacement and financial planning), continued benefits (such as health care and financial compensation), and, to a lesser extent, company resources such as an office or car.

Although it is not legally required, most companies (73 percent) provide outplacement services.

73 percent of terminated employees are required to sign a waiver or release before they can access severance benefits.

Of the 1,524 survey responses, 45 percent were from the Americas (including 456 from the United States), 34 percent were from Europe and 21 percent were from Asia Pacific. A broad cross section of industries was represented.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

International Layoffs Require Time and New Strategies, SHRM Online Global Discipline, February 2009

Legal Trends: Severance StrategiesHR Magazine, July 2008

Severance Pay: Practices and Trends, SHRM Online Compensation Discipline, July 2007

Quick Links:

SHRM Online Compensation Discipline

SHRM Salary Survey Directory

SHRM Compensation Data Center

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