More Organizations Are Expanding Severance Benefits, Survey Finds

Trend of catering to the employee experience may be why

Roy Maurer By Roy Maurer June 21, 2019
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​More employers are offering severance benefits to all workers, according to a recent survey, evidence perhaps that the trend toward designing an improved employee experience includes separation and even termination.

Forty-four percent of 1,500 HR professionals polled by career transition services firm RiseSmart said their organizations offer severance benefits to all workers—not just executives and senior managers—representing a 6 percent increase from 2017.

A majority of respondents cited projecting an employee-first workplace culture as the top reason for expanding severance, followed by taking care of employees and protecting brand reputation.

"Organizations hoping to create five-star experiences for employees understand the importance of maintaining a competitive edge at every stage of the employee journey—including upon separation," said Dan Davenport, president and general manager of RiseSmart. "Keeping severance offerings competitive is an often-overlooked yet critical component to establishing a reputation as an employer of choice."

Davenport added that while there's been an increase in the number of employers offering severance to all employees, "there's still room for improvement." He pointed out that about half of respondent companies with between 7,500 and 20,000 employees offer severance to all staff, and only one-third of organizations with more than 20,000 employees offer severance to everyone.

"Involuntary separations are incredibly stressful, and all levels impacted experience that stress when they go through transition," said Raymond Lee, CEO of Careerminds, an outplacement and career transition firm in Wilmington, Del.

Lee said that outplacement has been expanded to cover all staff levels at more organizations, as well. "Thirty years ago, severance benefits and outplacement were extremely costly," he said. "It was too costly to offer to all staff. Because of the consolidation of outplacement programs, the advent of outplacement virtual delivery models and lower transition costs generally, more companies can now provide these benefits to all levels."

[SHRM members-only HR form: Termination Checklist]

Severance Eligibility

Employee tenure, local labor laws, base salary, job level and title make up the top criteria for determining severance, according to RiseSmart.

Nearly 40 percent of the organizations surveyed require a five-year tenure for employees to qualify for severance. "Policies that exclude the majority of employees from severance are tied to similar policies that favor taking care of executives and officers who typically have been with the company for longer periods of time," Davenport said. "Only 22 percent offer severance regardless of tenure, and 18 percent require at least two years with the company."

Lee said that setting a minimum tenure requirement makes sense; two years is common. "Basing the amount of severance on tenure is better than basing it on job level," he said. "Someone who has not been out in the job market in a long time may need longer to find another job."

More organizations now offer outplacement to employees for reasons other than layoffs, Davenport said. "Many now extend it even to employees whose termination is based on poor performance, because HR departments recognize that doing so can help safeguard the employer brand."

The amount of severance paid out is most often calculated based on years of service and salary, according to 72 percent of respondents. Thirteen percent said they prioritize tenure, and 12 percent reported primarily considering salary.


Benefits

Health care is the most sought-after benefit for separated workers, followed by retirement benefits, payment of bonuses or commissions, cash payouts, life insurance and retirement-planning services.

"An increasing number of companies have decided to include benefits outside of health care, such as financial planning, as part of their efforts to remain competitive—and to attract new talent," Davenport said.

Lee added that employees who are in the later stages of their career are thinking more about retirement factors outside of just insurance and finance. Retirement benefits are expanding to include the social and emotional aspects of retirement transition, such as counseling on family, relationships and purpose in life.

RiseSmart found that redeployment of affected employees into other internal roles is prevalent. Sixty percent of the surveyed companies have programs designed to match employees with as many open internal positions as possible as an alternative to separation.

"For employers, redeployment preserves institutional knowledge, relieves the time and cost of recruitment and onboarding, and lessens the incidence of valuable employees in redundant positions leaving the company for a competitor," Davenport said.

But challenges include matching interested employees to relevant open positions and preparing those employees for a successful transition.

"How long will it take to upskill workers so that they can add value to the jobs they are moving into?" Lee asked.

Notification

About half of the organizations polled ask employees, before offering them severance, not to file legal claims. Another 28 percent said that they don't know if they do or don't.

"In all but the most egregious of terminations, offer a soft landing through a severance package, but only in exchange for a release of claims by the employee," said Jon Hyman, a partner in the labor and employment group of Meyers Roman Friedberg & Lewis, based in Cleveland. "Some employees deserve nothing, but most should walk out the door with something. While you are not under any legal obligation to provide severance to any employee unless you have a plan or policy that says otherwise, there is a lot of value in getting their signature on an agreement in which they promise not to sue you. It's closure, for both you and the employee, and helps create that little bit of goodwill at the end of the relationship. Never forget that losing a job is one of the worst things that can happen to someone. A little compassion goes a long way."

Raymond Lee will be speaking on the topic of offboarding at the Society for Human Resource Management 2019 Annual Conference & Exposition on Monday, June 24, at 7:15 a.m. at Westgate Ballroom B.

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