As Economy Improves, Severance Policies Remain Important

Use of severance varies by industry; formulas differ by region

By Stephen Miller, CEBS Feb 14, 2012

Even as the employment picture continues to brighten the U.S., it remains important for employers to have a defined set of post-employment practices in place.

"Employees at many organizations are under a great deal of stress, dealing with increased workloads due to staffing deficiencies coupled with the fear of another economic downturn," said Amy Kaminski, director of marketing for Compdata Surveys, a pay and benefits data provider. "Employers can help alleviate a little of that angst by implementing a clear set of post-employment practices, providing employees with an added sense of security in the event they are separated from their job."

Industry Variations

The Compdata Surveys BenchmarkPro 2011 survey, which collected data from nearly 3,700 U.S. employers in 2011 (with results released in February 2012), found that 60.5 percent had a severance policy. This rate varied by industry, with severance policies reported by:

71.2 percent of insurance companies.

62.4 percent in the health care sector.

58.5 percent among services employers.

45.6 percent of not-for-profit organizations.

Severance Formulas

The formulas used to pay severance differ from company to company, the survey found:

Severance was based on years of service at nearly 43 percent of companies.

A combination of a fixed number of weeks and years of service was used by 35.3 percent.

Employer discretion was used by 14.9 percent.

Using only a fixed number of weeks was the least common severance formula at 4.1 percent.

Regional Variations

Differences in how severance is paid out were seen across the U.S. For example, employer discretion was used to determine severance by:

18.9 percent of Midwest companies.

14.6 percent of Western companies.

13.7 percent of Northeast companies.

11 percent of South Central companies.

10.2 percent of Southeast companies.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Articles:

Designing and Administering Severance Pay Plans, SHRM Templates and Tools, November 2011

Severance Plans Weathered the Recession, SHRM Online Compensation Discipline, August 2011

Severance Best Practices Lessen Litigation Risk, SHRM Online Compensation Discipline, April 2009

Quick Links:

SHRM Online Compensation Discipline

SHRM Salary Survey Directory

SHRM Compensation Data Center

SHRM Metro Economic Outlook reports

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