Upper Saddle River, N.J. – March 2005 - Compensation Resources, Inc. has released the results of its 2005 Severance Survey . The purpose of this study was to obtain current data on various practices affecting severance policies among employers that represent all sizes, locations, and industries. Data was compiled from survey questions that were developed by CRI and distributed to companies in over 16 industrial classifications, in addition to Not-for-Profit organizations. The survey sampled severance data from a variety of organizations, collected throughout February 2005.
Overall, severance is most common when employees are separated as a part of a reduction in workforce. It is least common when employees quit or are discharged for cause. In the middle are the employees terminated for poor performance.
Survey results indicate that approximately 56% of the companies have a formal severance policy statement currently in place. Consistent with other research, results indicate that companies with large revenue sizes are more likely to have a formal severance policy statement than companies with small revenue sizes. While the majority of the respondents (67%) implemented their severance policy over three (3) years ago, 31% of the respondents either review the policy every year, while 55% review the policy on an as-needed basis. In terms of how well a company’s severance policy is communicated to employees, all respondents seem to be split between either satisfactorily (35%) or not well at all (30%). Overall, most respondents indicated they are satisfied in regards to their company’s current severance policy.
Of all survey participants, 65% of them stated that their company provides severance to terminated employees for terminations that are due to reduction in the force or corporate restructuring. Only 9% of the participants indicated that they provide severance for other circumstances, such as job elimination, mutual agreement, highly sensitive terminations, etc.
51% of the respondents stated that severance at their company is based on length of service and 23% indicated there is no set formula for severance. The following are some additional highlights regarding the basis of severance pay:
Among all respondents, 70% of them stated that at their company, severed employees continue to be covered under the health benefits program as long as they are enrolled prior to termination. If they do provide this service, 55% of the respondents stated that they provide it for the duration of the severance period, and 38% of them said they provide it until the end of the month. Privately-held companies show an even split between the duration of the severance period (48%) and the end of the month (48%) for continuing benefits coverage.
The majority (54%) of the respondents stated that they specify a minimum and maximum amount of severance that can be received by an employee. However, most of the companies with revenues of less than $10 million (74%) show that they do not specify a minimum and maximum amount of severance that can be received by an employee.
In terms of outplacement services to severed employees, 51% of all respondents indicated that they do not provide these services. Generally speaking, privately-held companies and companies of lower revenue sizes typically do not provide outplacement services.
Approximately one-third (33%) of respondents stated that their company has a separate severance policy for executives. Among these companies, the majority of them (72%) have a separate policy for the Chief Executive Officer and the other executives of the company. In terms of change of control agreements, 36% of the respondents stated they provide agreements to their executives and other key employees.
If your company is seeking to formalize a policy on severance, or wishes to update its current policy, a number of factors should be identified, including:
